All aboard

In Photo: The auto industry braces as the TRAIN has just arrived.

Story & photo by Ronald Rey M. de los Reyes

WE’RE already on our third week of 2018. And this scribe must say that it did come with a bang as Filipinos welcomed the New Year with smirk on their faces coupled with a few raised eyebrows as the Tax Reform for Acceleration and Inclusion (TRAIN) law took effect on January 1.

The auto industry, for example, was one sector disgruntled with such move as the degree of excise tax being imposed, which is the highest since 2003. Honda, Mitsubishi and Lexus, among others, have already published their new sophisticated price rates.

Some even agree that the TRAIN came with such bad timing, as the industry is still enjoying unprecedented sales records as we are already finally catching up with other neighbors in the region after three decades.

This could also put burden on the Comprehensive Automotive Resurgence Strategy (CARS) Program, which was implemented by the previous government back in 2015 with the aim to attract new investments and stimulate demand, as the country was deemed then to be a regional automotive manufacturing hub.

In a chat with Chamber of Automotive Manufacturers of the Philippines Inc. (Campi) President Rommel Gutierrez, he said that the TRAIN will certainly have an impact on the CARS program.

“The support given to participants may simply be offset by the increase in excise tax. It may also have a negative effect on the performance of the participants to achieve the volume required under the program.”

Despite this, the ever-optimistic head honcho was nevertheless upbeat about the industry’s performance, especially this 2017.

“Our ambitious sales target of 450,000 for the year will most likely be achieved,” he averred.

The Department of Finance (DOF), meanwhile for their part, sees the Comprehensive Tax Reform Program as a means to help fund the country’s massive P8-trillion infrastructure buildup, which, for them, is seen to improve people’s lives from all ranks. Tariffs imposed on not just cars, but tobacco, fuel, mining, beverages and many others will, for them, further help to supply that objective.

“With the TRAIN, some P2.03 trillion this year can be raised,” Finance secretary Carlos Dominguez III divulged in a television interview.

The said target was better than the first tax-reform program proposed in the early part of last year, which was only P1.83 trillion.

Waiting for the TRAIN

With the anticipation of the looming tax reform program last year, everyone was on their feet rushing to dealerships to purchase vehicles before the dreaded locomotive levy machine arrived.

The spike in sales was most palpable in the premium segments as the first tax proposal proved inimical.

“Many bought earlier since they were thinking na baka tataas,” one Mini Philippines sales executive shared.

However, many were caught by surprise when the final tax-reform version was released as changes in prices differed among various models, eventually relegating others to lesser price tags contrary to what was expected.

Marami ring mga nadismaya.”

For premium cars, TRAIN imposes a 20-percent excise tax on automobiles worth P1 million to P4 million. The old rate was P112,000, plus 40 percent of the amount over P1.1 million. While worth P4 million and above will now be taxed 50 percent. In the old rate, purchase of these cars bore a tax of P512,000 plus 60 percent of the amount in excess of P2.1 million.

For Wellington Soong, renowned esteemed luxury car dealer principal in the country, the said consumers’ behavior was irrational.

“With the still pending increase in prices that time, the market overreacted,” he expressed during a telephone conversation.

“The spike was artificial.”

For more mass-market vehicles, on the other hand, the recent surge in sales may also be attributed to the impending change in excise-tax rates according to the Campi chief.

“The prior discussions of various excise-tax rates proposals [before final version came out] could have been a major factor in consumers’ behavior,” he said.

The new tax-reform law imposes a 4-percent excise tax on automobiles worth P600,000 and below from the previous 2-percent.

Automobiles between P600,000 and P1.1 million will be taxed 10 percent. The old tax rate was P12,000, plus 20 percent of the amount in excess of P600,000.

“The approved version is not as expected,” Gutierrez frustratingly shared.

With the final account rendered, he remains steadfast. “We remain confident that the Philippine automotive industry will continue to be a major contributor to the economy. With the new excise-tax rates on automobiles finally determined, the automotive industry can now better plan for the future.”

Run flat

Gutierrez, however, disclosed that he sees a flat growth this year. A Honda dealer representative in the province also attested to the unfavorable inevitability.

Nag-panic buying yung mga tao since October, so ang forecast namin ngayon gradually din bababa. Siguro mga 40 to 50 percent ang ibababa for the first quarter.”

Fast track to the promised land

For the DOF, the new excise tax system for cars was not just a revenue-enhancing movement but is also seen as way to address pollution and traffic congestion. According to them, 80 percent of families in the country do not have cars anyway.

Furthermore, to encourage cleaner transportation, electric vehicles are exempted from taxes while hybrid cars will be tagged at half the rates. Pick-up trucks, which are commonly used by businessmen and entrepreneurs for commercial and agricultural means are, meanwhile, also excluded.

With the ways things are so far, this scribe still sees a “wait and see” ball game. But with all honesty, we does hope that the TRAIN do take us to the “promised Land” and not to the land full of empty promises.

So, for now…all aboard! Ehem. Not all abort.

Image Credits: Ronald Rey M. de los Reyes

Turning Points 2018
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