Inevitable rise in car prices

The business community can’t stop talking about the proposed tax reform measure and its impact on the different sectors.  Halfway into the year, there is still this big cloud of uncertainty on how the appropriate provisions will impact their industry.

Take the proposed automotive tax which everyone expects to happen next year.  The two umbrella organizations governing the automobile companies in the Philippines have raised their legitimate concerns about the proposed excise taxes.

CAMPI (Chamber of Automobile Manufacturers in the Philippines Inc.), which counts the biggest car companies in the Philippines like Toyota, Mitsubishi Motors Philippines and Isuzu Philippines Inc., among others, and AVID (Association of Vehicle Importers and Distributors) with its members like Chevrolet Philippines, Hyundai, Volkswagen, and Ford, among others lament the fact that their industry’s concern was not considered in the approved version of the proposed tax reforms in the lower house.

Both organizations – CAMPI chaired by Rommel Gutierrez, vice president of Toyota Motors Philippines, and AVID chaired by Fe Agudo, president and CEO of HARI, franchise owner of Hyundai for the Philippines are now pinning their hopes on the Senate to address their concerns. They have submitted their position paper to Sen. Juan Edgardo Angara, chairman of the Committee on Ways and Means and to Rep. Dakila Carlo E. Cua, Angara’s counterpart at the lower house.

For ordinary car owners, the main concern of course is the price.  Next year, it is almost certain that almost all, if not all of the vehicles will have jacked-up prices. This may bode well for all, the car companies in the short term. Many are now contemplating on moving forward their plans to change their old car with a new one this year to escape from the increased excise taxes next year.  Sales are looking good for the rest of 2017 for all the car companies, but they are also looking at the long term effects of the new excise taxes, and with good reason.

Automobile prices next year will be prohibitive, and this early, car companies are already steeling themselves for bad times ahead for the industry and reconfiguring their budgets. On the other hand, for ordinary vehicle owners, it may be wise to buy now ahead of the new excise taxes, but to raise the money to buy a new car, the old car must be sold first.Because new cars will be more expensive next year, second-hand cars will likely command better prices too, especially for those who simply cannot afford to buy a brand-new car anymore.  Is it wise to hang on to your used car until next year when the new excise taxes finally pass both houses and just apply for a car loan to raise the full amount for the brand new car this year? Will the expected price difference on second-hand cars next year be enough to offset the interest on the car loan? This is how the thought process goes for the ordinary car owner.

Should the proposed automobile tax get the nod of the upper house, cars that are priced up to P600,000 will be taxed three percent or a maximum tax of P18,000. For vehicles costing P600,000 to P1 million, the government will levy another 30 percent on top of the P18,000 in excess of P600,000. This means a maximum tax of P168,000. For vehicles priced over P1.1 million up to P1.6 million, the tax will be P168,000 plus 40 percent in excess of P1 million.For cars over P1.6 million up to P2.1 million, the maximum tax is P368,000 plus 50 percent in excess of P1.6 million.  We are talking of P618,000 on taxes alone. With this amount, an ordinary family can already buy a brand-new small car this year ahead of the new excise tax.

One can only imagine the taxes on higher-priced vehicles, so both CAMPI and AVID are proposing more realistic taxes. They are proposing that for vehicles priced over P2.1 million, the tax should be P618,000, with an addition of 80 percent for vehicles in excess of P2.1 million. Vehicles priced at P2.6 million up to P3.1 million should thus have a maximum tax of P1.018 million, plus 80 percent in excess of P2.6 million.

The DOF has stipulated seven tax brackets in the proposed tax reform measure:  P600 K – P1 million; over P1.1 million up to P1.6 million; over P1.6 million up to P2.1 million; over 2.1 million up to P2.6 million; over P2.6 million up to P3.1 million; and over P3.1 million which is the seventh bracket.  For this bracket, the maximum tax will be P1.418 million plus 90 percent in excess of P3.1 million.

Many say that having prohibitive automobile prices will ultimately lessen the automobiles on the road and may be the answer to our traffic woes. Singapore has taken a different approach to taxing automobiles with the end in view of easing traffic on the small, but highly progressive island nation. The second, third and fourth cars that one purchases in Singapore, will have progressively prohibitive government taxes. And this scheme seems to work there.

Admittedly, the government badly needs to raise taxes for its ambitious infrastructure projects.  The golden age of infrastructure is going to be President Duterte’s legacy, and I, for one, hope this happens in my lifetime because this is what the country needs, if we are to remain competitive, at least in the region.

However, the automobile companies’ concerns are also very legitimate and must be considered by the upper house. If the automobile taxes were railroaded for quick passage in the lower house, we hope the upper house will take its time to study and deliberate on the proposed measure.

Mabuhay!!!  Be proud to be a Filipino.

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