Vehicles are stuck in traffic along EDSA, Cubao in Quezon City, Aug. 18. — PHILIPPINE STAR/ MIGUEL DE GUZMAN

THE PHILIPPINE auto industry’s sales recovery will likely be derailed if a measure reimposing excise taxes on pickup trucks is signed into law, according to Fitch Solutions Country Risk and Industry Research.

In a commentary dated Sept. 26, Fitch Solutions said it expects total vehicle sales to post double-digit growth this year, after a strong performance in the first nine months but the outlook for 2023 has dimmed.

“Prospects for the continued strong recovery in vehicle sales in 2023 have diminished following the possible reintroduction of excise taxes on pickup trucks, mainly due to the subsegment’s popularity in the country,” Fitch Solutions said.

Pickups are classified under the commercial vehicle (CV) segment. 

Vehicle sales rose by 25% to 212,872 units in the January to August period, data from the Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) and the Truck Manufacturers Association (TMA) showed.

This was mainly driven by a 39% increase in CV sales to 160,790, which helped offset a 4.3% decline in passenger car sales to 52,082 units.

“Indeed, CV sales rose by 39% over the same period as consumers brought forward their purchases in anticipation of a possible reintroduction of an excise tax exemption granted by the Filipino government to assist small and medium businesses under the Tax Reform for Acceleration and Inclusion (TRAIN) law first introduced by the Duterte administration in 2017,” Fitch Solutions said.

In August, the House Ways and Means Committee approved the fourth package of the Comprehensive Tax Reform Program which included the elimination of the excise tax exemption for pickup trucks.

According to the Finance department, the removal of the excise tax exemption is expected to generate P52.6 billion worth of additional revenues from 2022 to 2026.

“While the decision to reimpose the excise tax is yet to be made final, we believe that demand for pickup trucks will rise as the deadline to the excise tax exemption nears resulting in sales dropping thereafter,” Fitch Solutions said.

Sought for comment, Albay Rep. and House Ways and Means Committee Chair Jose Ma. Clemente S. Salceda said in a Viber message that pickup truck sales will be affected, but noted that the tax exemption gave it an “undue advantage” over sedans that are manufactured locally.

“Some 98% of all pickup trucks are imported, whereas some sedans are manufactured or assembled here, including the Toyota Vios. From a domestic value-added perspective, the tax measure will be good for the domestic car manufacturing sector, because it will shift some of the demand away from almost fully imported pickups,” Mr. Salceda said.

“The proposal might hit the Indonesian or the Thai car industries since that’s where we import our pickup trucks from, but the Philippine auto industry will be all right. Demand from the pickup truck sector will simply shift to other segments, such as sedans. The domestically assembled ones create jobs here,” he added.

CAMPI President Rommel R. Gutierrez previously said that the measure would affect the industry’s recovery, since it would raise prices of pickup trucks.

“We are concerned about the addition of the taxes. As we know, the demand for vehicles is price sensitive. This will definitely impact prices,” Mr. Gutierrez previously said.

Meanwhile, Fitch Solutions said it kept the vehicle sales outlook unchanged while the measure is still pending in Congress.

It expects vehicle sales to jump by 19.7% to 321,400 units this year, with passenger car sales growth at 17% and CV sales growth at 21%. For 2023, it sees vehicle sales growth slowing to 9.1%.

Fitch Solutions forecasts Philippine vehicle sales to return to the 2017 peak level by 2025.

“In the medium term (2022-2026), we expect demand for CVs to be driven by the government’s efforts to fill the country’s infrastructure deficit through an aggressive policy to promote economic development,” it said.

The Marcos administration has promised to focus on infrastructure development in order to drive economic growth.

Fitch Solutions said heavy trucks and light commercial vehicles will likely perform better since they are used for construction activities.

“In addition, due to pickup trucks’ continuous appeal on the domestic market, demand for light commercial vehicles (LCVs) will continue to be high. However, prospects of the reintroduction of excise taxes by the Marcos administration could derail the fast growth the sub-segment has witnessed since the onset of much relaxed movement restrictions,” it added.

Fitch Solutions also pointed out that the Public Utility Vehicle Modernization Program did not receive any allocations under the proposed Department of Transportation budget for 2023, “calling into question the political will to support public transport operators as they shift towards lower emissions vehicles.”

Meanwhile, Fitch Solutions sees an improved outlook for passenger vehicle sales in the coming year, as consumer confidence rises and restrictions on movement are eased.

“Positive changes to the limits on movement will boost economic activity, which will encourage consumers to resume buying expensive goods like new (passenger vehicles),” it said. — Revin Mikhael D. Ochave