The Department of Finance (DoF) expects continued growth in the domestic automobile industry despite the government’s plan to impose higher tax rates on the pricier luxury-car segment.
This assurance is based on the robust sales growth of luxury cars in other member economies of the Association of Southeast Asian Nations (Asean) where excise tax rates are over one-hundred percent.
Reforming the excise tax system for automobiles is among the provisions of House Bill 5636 or the proposed Tax Reform for Acceleration and Inclusion Act (TRAIN) now pending before the Senate. Under the proposed law, the current four-bracket system will be replaced with a five-tier structure of higher rates on the luxury-car segment.
Finance Undersecretary Karl Kendrick Chua said in a statement that in other Asean economies such a Indonesia and Malaysia, automobile excise tax rates go as high as 125 and 105 percent, yet their luxury car markets continue to thrive.
Chua noted that in Malaysia, luxury car sales grew by 3.9 percent in 2016. In Indonesia, the luxury car manufacturer BMW recently expanded its model list and local car assembly, both for domestic Indonesian and export markets due to high demand despite high tax rates.
The same holds true in the Philippines, he said, noting that Satoru Suzuki, president of Toyota Motor Philippines (TMP), was recently quoted as having said his company would stick to its production output for 2017 despite an anticipated initial drop in vehicle sales because of the looming car price increases under the tax reform package. Toyota sees demand to pick up again soon enough.
Chua said TRAIN aims to make the country’s tax system more efficient, simpler and fairer by making it more progressive where the rich, rather than the poor, bear the tax burden.
“The Duterte administration’s tax reform agenda is not meant to unduly burden taxpayers,” Chua said. “It is meant to shift the burden to those who should pay more but have for a long time avoided payment or enjoyed a free ride from blanket exemptions and special treatment.”
“The Constitution mandates that the system of taxation must be progressive, that is, taxes are borne by those who can afford more,” he explained. Taxing luxury goods makes a highly progressive taxation, according to him.
The DoF official said that under the TRAIN bill, mass-market vehicles in the first bracket like the base model Toyota Vios, will only increase by around P13,000.
“This means that even at 50-percent interest, which is a very high assumption even at the worst financing terms, the proposed tax rate for mass-market cars will only add at about P350 in amortization when spread over 60 months, which is the standard loan duration for cars. The additional take-home pay resulting from the proposed hefty personal income tax cuts can more than offset this,” the DoF statement said.
Chua likewise underscored that under the TRAIN bill, pick-ups, buses, trucks, cargo vans, jeepney/jeepney substitutes, and special purpose vehicles such as cement mixers, fire trucks, boom trucks, ambulances and off-road vehicles for heavy industries are excluded from the proposed auto excise tax adjustments.
Variants used as commuter vehicles or utility vehicle (UV) express units such as the Mitsubishi Adventure, Isuzu Crosswind, Toyota Hi-Ace and Nissan Urvan cost between P800,000 and P1.3 million and are not significantly affected by the adjustments, Chua said.