Industry braces for excise tax hike

For almost a year now, many Filipinos have based their decision to buy a new car on price speculations.

Since the government’s announced plan to restructure the excise tax rates on the vehicle industry, consumers and industry players have been trying to second guess the prices of new cars in 2018 when the rate adjustments are expected to be finalized and passed into law.

For the most of this year, however, any speculations continued to be hearsay. Members of Congress had, from time to time, revised the proposed table, coming up with different sets of rates, and therefore different price adjustments.

Now, just days before the end of the year, Congress finally decided on a final set of rates for the new car excise tax which would be implemented starting 2018.

With Congress reaching a final consensus on the tax rates only last week, and the proposed law awaiting the President’s signature, the auto industry is scrambling to put together its sales forecast next year.

“I understand that all companies are still recalibrating all forecasts for 2018, including my company and CAMPI,” Dante Santos, first vice president for Mitsubishi Motors Philippines Corp., told the Inquirer in a text message.

The move to revise automotive excise tax rates is part of the first package of the comprehensive tax reform program under the Duterte administration.

Under the first package, more Filipinos would be paying lower personal income taxes, but these could partly be negated by increases on some consumption taxes.

There were at several versions of the first package filed in Congress, including House Bill (HB) 4774, HB 5636, Senate Bill (SB) 1592, and the final version approved by the bicameral committee.

Higher tax for ‘people’s cars’

The first versions somewhat shielded ‘people’s cars’ whose net manufacturing or net importer price were below P600,000 from any substantial tax increase.

But in the bicameral committee version approved by Congress, there would be a four percent excise tax, a hefty increase to the two percent currently imposed.

Under the final tax package titled Tax Reform for Acceleration and Inclusion (TRAIN), the rest of the new car excise tax rates would be as follows: 10 percent for those between P600,000 and P1 million; 20 percent for those between P1 million and P4 million; and 50 percent for vehicles worth over P4 million.

The entire car industry in the Philippines is targeting to finish 2017 with 450,000 unit sales.

Excluding sales of car importers, the total sales from January to November this year have already reached 380,179 units, according to joint data from Chamber of Automotive Manufacturers of the Philippines, Inc. (Campi) and Truck Manufacturers Association (TMA).

This bring the total vehicle sales of member companies up 16.8 percent from the same 11 months last year.

Recommendations

Earlier this year, Campi and Association of Vehicle Importers and Distributors (Avid) released a position paper regarding the excise tax rates. In essence, the industry agreed to increase the tax rates, but wanted to temper the hike.

Moreover, the industry also raised some recommendations that the final tax bill did not use.

For example, the industry wanted to expand the price brackets from four to seven in order to “recognize and consider the increased segmentation in the industry.” TRAIN only used four.

Vehicle companies also wanted a lead time of at least six months so that the industry could make the “necessary adjustments.”

However, with TRAIN already on its way early next year, the industry has no choice but to brace itself.