The automotive industry last year had an aggressive growth, particularly in its last quarter, as consumers went into panic buying due to the anticipated implementation of the higher excise tax on vehicles. The boom in the local auto sales, with an observable increased of double digits in recent years, is expected to slow down as the new tax reform took effect this January.
Last Dec. 19, President Rodrigo R. Duterte signed into law the Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion (TRAIN). Under the new tax reform, personal income tax rates is reduced while higher excise levies on petroleum and vehicles, among others. TRAIN viewed as a step in the right direction as most of the revenues will be used for government’s spending on infrastructure development.
According to the Department of Finance (DoF), the new tax reform simplifies the excise tax on automobiles. Lower-priced cars continue to be taxed at lower rates while more expensive cars are taxed at higher rates. In this way, the new excise will raise revenue in a very progressive manner as the richer buyers tend to own more and expensive cars compared to those who earn less, the DoF noted in its Web site.
In particular, excise tax on vehicles sold P600,000 and below increases from 2% to 4%; 10% for vehicles priced over P600,000 to P1 million; 20% for between P1 million and P4 million; and 50% for vehicles sold more than P4 million.
To encourage cleaner transportation, electric vehicles are exempted from the excise tax, together with pickup trucks. Hybrid cars or vehicles that use a combination of internal combustion and electric power will be taxed at half rates.
“When we consider the TRAIN as a package, the increase in take home pay from the personal income tax reduction will be more than enough to offset the increase in prices resulting from adjustments in excise taxes. For example, those who will purchase a Vios will be able to save P16,122 despite the increases in taxes, and those who buy an Innova will save around P29,923 even if they buy a car with the new rates. For a Vios, this translates to only an additional P183 in monthly amortization assuming a standard loan term of five years,” the DoF explained.
In effect to the auto industry, some local brands have already increased and decreased the selling prices of their car models, while others stayed the same. Among the mainstream local brands: Honda Cars Philippines, Inc. (HCPI); Toyota Motor Philippines (TMP); and Toyota’s luxury division Lexus have updated their price figures, with price increase of most models as quite manageable.
Other brands have yet to release changes in their price scheme, claiming that they are still waiting for the Implementing Rules and Regulations (IRR) or basic guidelines on pricing their new cars, to be released by the government.
Mainstream car distributors are expecting a gradual decline on the car sales in the first quarter of the year, and flat growth rate at the end of the year. Despite this, Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) President Rommel Gutierrez said last December that they are still confident that the Philippine automotive industry will continue to be a major contributor to the Philippine economy. — Mark Louis F. Ferrolino
