Proposed auto excise-tax rates

In the recent Consultative Meeting of the Senate Committee on Ways and Means, there was a discussion on the proposed increase on the excise tax on automobiles.  Among those present were representatives from the legislature, industry and government, particularly the Department of Finance and its various agencies.  Under the current system, there are four tax tiers based on the net manufacturer’s or importer’s selling price, which is P600,000 and below; over P600,000 to P1,100,000; over P1,100,000 to P2,100,000; and over P2,100,000.

It is interesting to note the market share distribution for each tier, with the lowest or those P600,000 and below at 19 percent, then 60 percent for the next tier up to P1,100,000, with 20 percent for automobiles up to P2.1 million and the top tier of over P2.1 million with only 1 percent.  The proposal in Senate Bill 1408 is to increase these excise tax rates from 2 percent to 4 percent for the lowest tier; 20 percent to 40 percent for the second tier; 40 percent to 100 percent in the third tier; and 60 percent to 200 percent in the top tier.  This means that the excise taxes will at least double for 79 percent of all automobiles sold in the Philippines and much more for the remaining 21 percent.

While there is support for the government’s efforts in the tax reform program, the House substitute bill and the industry proposal calls for a more moderate increase.  I was also pleased to hear the proposal of the Department of Trade and Industry Assistant Secretary Rafaelita Aldaba that the additional revenues to be generated from the increase in excise taxes should be channeled toward developing and improving domestic manufacturing, particularly our automotive sector.  Another proposal was to reduce the excise tax on automobiles that are locally assembled, which I thought was a great idea since manufacturing has the highest multiplier effect and will definitely generate more employment for our domestic work force.

Thailand was cited by Aldaba as a success, which made them the Detroit of Asia.  Thailand with a population of 67 million produced and sold more than 2 million vehicles last year, of which more than 800,000 was for domestic sales, with the rest being exported. In comparison, the Philippines with a population of more than 100 million had total vehicle sales of less than 400,000 and most of that was imported as completely built up units.

It is easy to blame the local automotive industry for the worsening traffic situation and use taxation as a convenient tool to justify curtailing demand and, therefore, solving the traffic problem particularly in  Metro Manila.  However, it is perhaps better to solve this problem by more efficient traffic management and enforcement, driver education, improvement of our current mass transport facilities, the creation of new mass transport systems, road clearing, improvement and expansion.  The plan of President Duterte to decentralize government from Metro Manila, as well as the development of the countryside through railway systems, is an excellent one and should be prioritized.

We are all hopeful that we do have competent and sincere government officials that will ensure what is best for our country and that while the business sector may make some comments and suggestions, it is willing and ready to cooperate and support these initiatives.

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