Palace okays tax perks for new car investments
Worth at least $600 million
President Aquino III has approved the Comprehensive Automotive Resurgence Strategy (CARS) Program that will grant P4.5 billion in annual tax incentives for six years or a total of 27 billion ($600 million) over a six year period, which the government expects to be offset by the inflow of an estimated 27 billion worth of new investments in parts manufacturing and production of 600,000 units of vehicles for an overall 300 billion economic impact that will transform the Philippines into an automotive manufacturing hub in ASEAN over the medium term.
“The CARS program is designed to build and grow the parts making capability of the auto industry for without a robust parts making industry, our car making industry will remain uncompetitive. The program is about building capabilities and jobs to make our automotive manufacturing industry competitive in ASEAN,” said DTI Secretary Gregory L. Domingo in a statement.
The program is also expected to generate 200,000 direct workers. Overall, the CARS program is estimated to contribute 1.7 percent to the country’s Gross Domestic Product.
The signing of the Executive Order for the CARS Program was in time for President Aquino’s state visit to Japan, which accounts for the bulk of the country’s automotive investments. Aquino will leave today for Japan to seek for more Japanese investments and tourists. Aquino is expected to dangle this incentive to Japanese carmakers to invest more in the Philippines.
The six-year auto incentive package, which underwent thorough deliberations since the early days of the Aquino administration, will support the production of three motor vehicle models in the country with the establishment of fixed capital expenditures in new parts making capability to encourage large scale vehicle assembly.
The statement, however, did not mention the volume of production required for the three models and if this is on a per manufacturer basis. Originally, the DTI was toying with the idea of 40,000 unit production hurdle annually for each model by each manufacturer and to export some of the production.
The CARS Program has specifically identified new investments in automotive manufacturing parts not currently available in the country, like large car body panels, bumpers, instrument panels, head lamps, shock absorbers, plastic fuel tanks, automotive fabric and others. The technology “spill over” will help develop basic support industries for manufacturing, such as casting, forging, machining and tool & die.
DTI Undersecretary and BOI Managing Head Adrian S. Cristobal Jr., who painstakingly shepherded the formulation of this special automotive program, said the funds for the incentives under the CARS Program will be allocated through the General Appropriations Act.
Cristobal hopes the incentives can already be incorporated in the 2016 national budget. With
that, the six-year program will last until 2021.
The Executive Order on CARS Program is yet to be published in newspapers of general circulation and will take effect 15 days after its publication. Upon effectivity, the CARS Program will supersede the existing Motor Vehicle Development Program under EO 156.
The CARS Program is a result of the Automotive Industry Roadmap, which was jointly formulated by the private sector and the DTI-Board of Investments. The BOI will administer the special automotive program.
The Philippines, a bit player in the global automotive sector, has been longing to become a part of the huge automotive global value chains, but protectionism in the industry has made it difficult for the small and medium enterprises to break barriers to trade.
The Philippines has a marginal local automotive parts and components suppliers. With a population of over 100 million, the Philippine car market last year hit only over 272,000 units and is expected to hit over 300,000 unit sales this year.
So far, more than 60 percent of the country’s total automotive sales have been accounted for by completely built up imported cars.