Car sales seen unaffected by excise-tax adjustments

Finance Secretary Carlos G. Dominguez III said the local automotive industry should continue to grow even with the proposed adjustments in car excise tax, since the lowering of the personal income tax (PIT) compensates for and provide Filipinos with more money in the pocket for spending.

According to Dominguez, buyers should hardly feel the effects of the price adjustments for mass-market cars resulting from the excise-tax increase because of the flexible financing schemes offered by car dealers that stretches as long as seven years for some car models.

“We think [car] sales will continue to grow at a healthy rate. With the increasing incomes of people and the drop in income tax, [the car industry] can very well [grow] another 20 percent a year,” he told financial reporters.

He dismissed such dire prognosis as potentially killing the industry, saying  that, while the adjustments might initially slow down sales, “the [overall] sales growth is still going to be
very healthy.”

Dominguez expressed this sentiment at the public hearing of the House Ways and Means Committee on so-called Package One of the Comprehensive Tax Reform Program (CTRP).

While the increase in excise-tax rates for automobiles will effectively result to a slowdown in car sales, the industry should still be able to recover and continue its growth, like it did the past two years when car sales went up by 25 percent, according to Dominguez.

“When this package is passed, there will be a reduction in income tax so that somebody earning half-a-million pesos [annually] will get to increase his purchasing power by about P27,000. At that time, he can decide is he going to buy a car? Will he put his kid in a better school?” Dominguez quickly added.

Middle-income taxpayers, or those earning between P21,000 and P60,000 a month, will get tax relief ranging from P21,800 to P48,000 a year based on Department of Finance computations, while the government gains at least P31.4 billion in additional revenues from the car excise-tax adjustments, Finance Undersecretary Karl Kendrick T. Chua said.

“In summary, once we have seen and taken this excise on automobiles as a package together with the personal income tax, once we consider that there are also many other factors that affect decisions to buy cars, we see that this tax can actually be very progressive, can be affordable and can actually contribute to the [prosperity of our country],” Chua said.

The DOF has assured Congress the proposed increase in fuel excise tax should lift inflation by just 1.5 percent, while adjustments in the automobile tax is not likely to make a dent on the strong growth performance of the local car industry.

Chua added car sales should not be adversely affected by the tax-reform plan, as proven by historical data and contrary to concerns aired by certain players of the local automotive industry.

Based on data from the Land Transportation Franchising and Regulatory Board (LTFRB), car registration continues to grow despite high oil prices.

In 2011 oil prices rose by around 40 percent and, yet, total car registration grew by some 8 percent and new registrations even increased by 13 percent.

“The concerns of the local car sales industry are valid, but historical data show that such fears are not likely to occur. Car sales, even when oil prices tripled, continued to grow in the last 10 years because there is also an income effect in addition to a price effect,”
Chua argued.

The proposed fuel excise-tax adjustments under House Bill 4774 calls for staggered increases from July 2017 to 2019 on the excise tax for gasoline, aviation turbo fuel and other nonessentials from P4.35 to P10 per liter. Excise tax for diesel, kerosene, bunker fuel and Liquefied petroleum gas will also increase from P0 to P6 per liter, as well.

Also, under the House-revised tax-reform package, car excise tax will be adjusted from 2 percent to 4 percent for cars with a net manufacturing or import price of up to P600,000.

Vehicles priced P600,000 and above will be taxed higher, with those over P2.1 million to be charged P1.224 million plus 200 percent in excess of P2.1 million.