Auto tax hike seen bad for industry

The Board of Investments warned that additional taxes on automobiles under the Department of Finance’s proposed tax policy reform program might deter the expansion of the country’s automotive assembly sector.

When asked during a Senate ways and means committee hearing Tuesday how the DOF’s proposal to increase excise tax on automobiles through a progressive ad valorem system would impact on the industry, BOI governor Henry T. Co said that “would shoot down the CARS program.”

The BOI’s CARS program  (Comprehensive Automotive Resurgence Strategy) would provide a $1,000 (about P50,000)-per unit subsidy on locally assembled vehicles as long as manufacturers can deliver a minimum volume of 200,000 units within six years. New models of Mitsubishi Mirage and Toyota Vios were enrolled in the program to enjoy subsidies and other incentives starting next year.

However, in the case of the Vios, DOF estimates showed that its price would increase to P871,000, as the higher excise proposed under the first package of the tax reform program would add P121,000 to the current selling price of P750,000, Finance Undersecretary Karl Kendrick T. Chua told the hearing.

The DOF wanted to restructure the excise tax on automobiles, except for trucks, cargo vans, jeepneys, jeep substitutes, single chassis engines and special purpose vehicles.

“We’ll be giving money on one side but taking money on the other side. It runs counter to what the government is doing,” Co said, referring to the potentially higher retail price that might  dampen demand despite the incentives granted to manufacturers.

“Although we support the initiative to collect more taxes, it should be done in a way that would not negatively impact on current programs that we already have in place,” Co added.

But for Chua, “the CARS program and the DOF’s proposed excise tax increase need not be incompatible because they serve different purposes.”

Co later clarified that the BOI was “not against excise taxation in automobiles,” citing the example in Thailand showing that when used effectively, such can also boost the auto industry.

Thailand had kept the excise tax on pickup trucks at a low of 2 percent while jacking up the rates on other vehicles to as much as 20 percent, such that the domestic market shifted to pickups, Co noted.

Eventually, Thailand became a leading producer of pickup trucks also for the regional market.

“Something similar is possible in the Philippines. We’d like to work with the DOF to see how we can use this opportunity not only to create more revenues but also create more jobs” in the auto industry, Co said.

From four main packages initially, the Duterte administration’s tax policy reform program would now have six packages, a bill for the first of which was already submitted to both houses of Congress last month.

The first of the six tax policy packages would adjust tax brackets to correct “income creeping”; reduce the maximum personal income tax rate to 25 percent over time, save for the “ultra-rich” who would be slapped a higher 35 percent; and shift to a simpler modified gross system.