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DOF Hopes to Implement Automobile Tax Hike by 2018

Tax and budget talks have begun at the Department of Finance, and one of the key areas discussed was how to ensure the financial stability of President Duterte’s 10-point socioeconomic agenda. Among the measures discussed was the restructuring of the automobile excise tax and raising it equitably among the income bracket. According to the DOF, increasing the automobile excise tax may also serve to alleviate the worsening traffic situation in Metro Manila and other highly congested urban hubs.

According to Finance Secretary Carlos Dominguez III, if they follow the DOF timetable, the automobile tax hike would take effect in 2018. Dominguez attests that there’s enough time for the government to fix government subsidized public transport systems before they implement the restructured excise tax.

“If this thing is going to pass, it will probably be effective in 2018. So we have a year to fix it. So there, that’s the reason. By the way, we are not imposing this merely to make life hard for people. We are imposing this to finance [our] infrastructure needs,” Secretary Dominguez said in a statement.

Part of the comprehensive tax reform program

Cars in a parking lot

The restructuring of the excise tax on automobiles is part of the first package of the proposed comprehensive tax reform program the DOF submitted to Congress in September. It mainly affects private cars, and excludes all public utility vehicles including jeepneys, buses, jeep substitutes, single cab chassis, special purpose vehicles, cargo vans, and trucks.

The new automobile excise tax also aims to discourage the purchase of new cars, which the Secretary hopes will help ease traffic while reducing air pollution and carbon footprint.

“What’s the point of buying a new car and not moving in the streets? That point of the matter is we want to direct the people to go to public transport, and we are making big investments in public transport, particularly the bus rapid transit system, and we’re fixing up the trains, whose maintenance has been neglected over the years,” Dominguez said.   “So we are going to make public transport more available. We have to discourage new cars because just look at the traffic, It’s not moving,” he added, saying that the traffic congestion has become a nationwide problem, happening not only in the Metro but also in other major urban areas such as Cebu and Davao cities.

Opposition from unexpected places

Mitsubishi manufacturing plant

The move has been met with opposition by the Department of Trade and Industry and Mitsubishi Motors Philippines. The government institution and the major Japanese car brand teamed up in an attempt to renegotiate some of the conditions of the impending tax reform, claiming that a higher tax can have a negative effect on the country’s push to become a major car manufacturing base.

Trade Undersecretary and Board of Investments (BOI) Managing Head Ceferino S. Rodolfo, said they wanted to shield vehicle models currently enrolled in the Comprehensive Automotive Resurgence Strategy (CARS) Program. “We’ll look at the vehicle segments na hindi tatamaan ’yung CARS, and the locally assembled [models and units]. From the DOF’s tiered proposal, we’re looking at adjusting the segments to be included in order to avoid the price level that corresponds to the participants in CARS,” he said.

What the new tax scheme entails

Once the new automotive excise tax takes effect, entry level cars priced PhP 600,000 and below will see their tax go up from 2 percent to 5 percent. Meanwhile, luxury vehicles costing more than PhP 2.1 million will experience a whopping 60 percent increase in taxes off their manufacture and import price.

A long time coming

Finance Undersecretary Karl Kendrick Chua said that the tax reform is long overdue, noting that the Philippine automotive industry has enjoyed a 10-year span without seeing any changes in its tax structure. “Even with a doubling of gasoline and diesel price between 2009 and 2011 to close to P45 and P60 per liter, automobile sales continued to grow strongly,” he added.

Chua said the tax reform is designed to affect the top 10 percent of the income bracket more than it does than the lower 90 percent, and more so the top 1 percent. Along with the excise tax restructure the DOF also plans to adjust the fuel excise tax in a way that affects the income bracket similarly as the proposed automobile excise tax, affecting the rich the most.

A study conducted by the state-owned National Tax Research Center discovered that the automobile excise tax in the country is the lowest across Southeast Asia and covers the least number of vehicles. “The Philippines imposes the lowest minimum rate of two percent on taxable motor vehicles compared with five or 10 percent in minimum tax rate in other member countries,” the NTRC said in the “Comparative Excise Taxation of Motor Vehicles in ASEAN Countries” study published on the NTRC Tax Research Journal in October.

Government officials are claiming that the results of the study justifies the current administration’s plan to implement the new automobile excise tax measure.

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