New tax reverses auto industry growth
The mulled comprehensive tax reform plan of the DoF includes a restructuring of the current tax rates imposed on automobiles. It more than doubles the existing excise tax from 2% to 5% for automobiles priced below P600,000; 20% for those selling for P600,000-P1.1 million; 40% for those with prices ranging from P1.1 million-P2.1 million; and 60% for vehicles selling above P2.1 million. As per some initial calculations applied to best-selling models, a midspec Toyota Vios will cost P90,000 more, a mid-spec Toyota Innova will be taxed P560,000, while the popular top-spec Toyota Fortuner will be hit with an additional P1.25 million.
Much as the automotive sector supports government moves to free up public spending power by reducing income taxes to ASEAN levels, and to recover lost tax revenue due to fuel taxes frozen since 1997, the new excise taxes that were proposed recently by the DoF for legislation by the House of Representatives would unduly burden the consumer with SRP, or suggested retail price, increases between 20% - 60%. And this doesn’t yet take into account the withdrawal of tax incentives when the BIR rationalizes the grant of incentives.
Without a doubt, this is not an opportune time to squeeze more taxes from the industry, despite historically record sales, as it is only now, after 30 years, that the local auto industry is playing catch-up with the rest of its ASEAN brethren. Besides, the auto industry has always been the favorite milking cow of the tax authorities every time they need to boost revenue. This high tax regime is the reason why smuggling has long been rampant. Our sales volumes have always been laughable compared to the other ASEAN markets because the industry’s market growth, ever since the PCMP years in the 1970s, has always been stunted due to persistent cost disadvantages because of high energy prices, taxes and lower labor productivity vis-a-vis the rest of ASEAN.