DOF wants to tweak auto tax system
New excise regime eyed in 2018
The Department of Finance (DOF) wants to restructure the present excise tax system on cars to raise public funds as well as help deal with the worsening traffic crisis in Metro Manila and other highly congested urban centers.
Finance Secretary Carlos G. Dominguez III said yesterday the Duterte administration wants a new excise tax regime on automobiles beginning in 2018, but at the same time, starts investing in infrastructure as early as next year.
“We are not imposing this [higher tax] merely to make life hard for people. We are imposing this to finance [our] infrastructure needs,” Dominguez said in a statement.
Dominguez also said a highly progressive tax on automobiles will discourage the purchase of new cars, which, in turn, will help stop traffic congestion from getting worse, and reduce air pollution and the carbon footprint.
“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.
The finance chief noted the worsening traffic congestion is not confined only to Metro Manila, but is also happening in other major urban hubs such as the cities of Davao and Cebu.
The DOF has submitted before the Congress in September the first package under its proposed comprehensive tax reform program.
The first package covers the reduction in personal income tax rates, along with offsetting measures that aim to expand the value-added tax base, adjust the excise tax on petroleum products and index these to inflation.
The DOF proposed bill also contains provisions for the restructuring of excise taxes on automobiles, except for buses, trucks, cargo vans, jeepneys, jeep substitutes, single cab chassis, and specialpurpose vehicles.
According to Finance Undersecretary Karl Kendrick Chua, the reforms in the automobile excise tax being pushed by the DOF involves shifting to an ad valorem system that simplifies the computation of the tax.
“Under the proposal, the tax brackets for the manufacturing price or import price can be indexed to inflation once every two years if the peso-US dollar exchange rate appreciation is more than 10 percent,” Chua said.
“If the movement in the exchange rate is more than 20 percent, then the full movement of the exchange rate will be the basis for the indexation,” he added.
Under the proposal, the tax for entry-level cars priced R600,000 and below would go up from 2 percent to 5 percent, while luxury vehicles priced over R2.1 million would be taxed 60 percent of the manufacture/import price, up from the current tax of R512,000 plus 60 percent in excess of 2.1 million.
Chua noted that the car industry has already enjoyed a 10-year grace period of no tax increases.
“Even with a doubling of gasoline and diesel price between 2009 and 2011 to close to R45 and R60 per liter, automobile sales continued to grow strongly,” he noted.
He said the DOF proposal would affect the top 10 percent of households in terms of income the most, and increasingly the top 1 percent, as this is a highly progressive tax.