Senate version of auto excise tax bill seen to hit car sales, manufacturing

Car sales under the government’s automotive resurgence program would take a hit from higher excise tax rates passed in the Senate, possibly creating less jobs in the process, Trade and Industry Secretary Ramon Lopez said.

This is why, Lopez said, he preferred the auto excise tax rates proposed in the House version of the first tax reform package under the Duterte administration.  The House version gives a relatively lower increase for units registered under the CARS program when compared to the Senate version, he said.

The CARS program, which stands for Comprehensive Automotive Resurgence Strategy, provides perks to participating car companies to produce 200,000 units within six years. It has two registered participants, market leaders Toyota Motor Philippines Corp. (TMP) and Mitsubishi Motors Philippines Corp. (MMPC).

“[The Senate bill] might impact the volume that would have been sold. The volume expected to be sold if it were [pct] increase would change when the tax rate becomes 10 percent,” Lopez said in a mix of English and Filipino.

“In the end, it’s the manufacturing activity you are creating. If they are successful, that means the manufacturing activity would grow, creating more jobs and more local content. If the increase is super big, it would be a slowdown. That’s why our wish is closer to the House version,” he said.

Under House Bill No. 5636, different increases were pinned for different price brackets as higher rates are imposed on more expensive cars.

For example, the lowest bracket, which covers cars with a net manufacturing price of up to P600,000, would be imposed a three-percent excise tax rate for the first year of implementation, then four percent in the next year.

Senate Bill No. 1592 simplifies this, offering only two excise tax rates: 10 percent for those priced up to P1 million, and 20 percent for those that exceed that amount. For most of the price brackets, the Senate bill offers lower increases in excise tax.  It even offered lower increases for more expensive cars, such as those in the luxury market, which would have had an excise tax of 90 percent to 120 percent in the House bill.

“Initially, my answer there assuming we have the Senate version is that I’m for the House version. That’s because there is less increase in the House bill and that’s where the prices of the cars under the CARS program are,” Lopez said.

This, he said, is under the assumption that he has a choice between the two. However, if the rates in the Senate bill prevail in the bicameral conference, he said he “can still live with that.”

Mitsubishi and Toyota officials have not yet reached out to him, he said.

Both TMP and MMPC joined the program during the last stretch of the Aquino administration, prior to talks of excise taxes being raised under a new tax regime. Now, the models the companies registered under the CARS program — TMP’s Vios and MMPC’s Mirage — would be subject to an increase in car taxes, just like every other car brand. The difference now, however, is the extent of the increase.

As of this writing, representatives of both car companies did not provide, upon request, the net manufacturing price for their respective CARS-registered models. For both chambers of congress, the excise tax rate would depend on the net manufacturing price.