Order waiving import tax on EVs should go further

THE government’s decision to remove import barriers to electric vehicles, or EVs, is a step in the right direction, although policymakers should consider going further by extending similar privileges to hybrid cars.

In a press briefing last week, Secretary Arsenio Balisacan of the National Economic and Development Authority (NEDA) announced that his office had endorsed an executive order to President Ferdinand Marcos Jr. that would suspend for five years tariffs on completely built-up units, or CBUs, of electric vehicles. Plus, import duties on certain EV parts and components will be slashed from 5 percent to 1 percent over the same period. The order should become effective by December and will be reviewed after a year.

Obviously, the government wants to encourage Filipinos to buy EVs, such as passenger cars, buses, vans, trucks, motorcycles, tricycles, scooters, bicycles and others like them. If that goal is met, the Philippines could reduce its dependence on imported oil, which accounts for the largest component of rising inflation these days.

The problem is the lack of charging stations in the country, which may discourage consumers from purchasing EVs in the coming years. Shell Philippines only recently opened a charging station south of Metro Manila, and eight more are reportedly in the pipeline by yearend. Clearly, many more charging stations will be needed to encourage robust EV sales.

Mr. Balisacan acknowledged this problem when asked about it by reporters. But he said it was a chicken-and-egg situation, meaning the government hopes that having more EVs on the road will accelerate the development of charging stations across the country.

On a related issue, private firms will need to improve the charging technology. Based on reports, it takes about 30 minutes to fully charge an EV at Shell, at a cost of P65 per minute or a total of P1,950. The price seems reasonable, but motorists may lack the patience or time to wait half an hour for a full charge.

Hybrids and CKDs

Regrettably, NEDA’s proposed executive order does not include hybrid vehicles. They are essentially self-charging cars that also have an internal combustion engine. A few models have been introduced in the Philippines, but if consumers want to buy one, they contend with a long waiting list and higher prices relative to regular vehicles.

Giving tax breaks to hybrids could have a faster impact on lowering the country’s dependence on oil and on inflation. Also, hybrid vehicles are not dependent on the development of charging stations. Policymakers should consider giving them tax breaks, perhaps until EV sales start taking off.

Moreover, NEDA and others in government should consider limiting the tax incentives to completely knocked down, or CKD units. Importing CKDs will generate jobs, because unlike CBUs, they require local assembly before they are put up for sale.

For good measure, the authorities should consider incentives for exporting EVs and hybrids that were assembled in the country. From the Philippines, auto assemblers can sell to other members of Asean, or the Association of Southeast Asian Nations. That bloc has a combined market of about 680,000. And once the Philippines ratifies the Regional Comprehensive Economic Partnership (RCEP) trade agreement among the Asia-Pacific nations, the country will become part of the largest free-trade zone in the world, which will include the 10 Asean members, plus China, Japan, South Korea, Australia and New Zealand.

Importing CBUs could create a problem — a substitution threat — for local car assemblers that have invested heavily to construct facilities in the country and have hired local workers to operate them. NEDA is likely aware of this possible issue, which is perhaps why it plans a review after only a year.

Lastly, the Philippines should hasten its development of emission-free energy plants, including nuclear power. Relying on fossil fuels to run power plants will mitigate the benefits of widespread use of EVs and hybrids. Surely, no one in the government wants higher electricity prices that may result from higher demand from EV owners.

Despite all the concerns mentioned here, the executive order proposed by NEDA should result in a net gain for the Philippines. But as we also noted, there is always room for improvement.