Tax reform makes luxury vehicles cheaper – study

MANILA, Philippines — The Tax Reform for Acceleration and Inclusion (TRAIN) law, which will take effect on Monday, is seen to slash prices of luxury vehicles, also known as toys of the rich.

On the other hand, prices of basic utility cars, which salaried workers and middle-level executives buy, are expected to go up.

Simulations made by economic policy advocacy group Action on Economic Reforms (AER) show that vehicles with a suggested retail price (SRP) above P2 million would see a reduction in selling prices with the lower tax that the so-called tax reform law imposes on them.

For instance, AER projects that a Ford Mustang 2.3 EcoBoost Premium, which has a current SRP of P2.509 million, could sell for P2.43 million next week, or a price cut of more than P82,000.

A Mitsubishi Pajero 3.8L V6, with an SRP of P2.555 million, could sell for P2.46 million nearly P100,000 lower.

The simulations show that the more expensive the luxury vehicles are, the bigger the price reduction.

A Toyota Land Cruiser Prado 4.0, with an SRP of P3.017 million, is projected to sell for P2.77 million, or a discount of nearly P250,000.

A Toyota Alphard 3.5 V6, currently selling for P3.28 million, could sell for P2.94 million or a price cut of P337,000.

Prices are expected to decline because the tax will go down.

Under the TRAIN law, vehicles with a net manufacturer’s price of up to P600,000 will be taxed at four percent, 10 percent for those with a producer’s price of P600,000 to P1 million, 20 percent for those with a price of P1 million to P4 million, and 50 percent for those with a manufacturer’s price above P4 million.

The present rates are two percent for vehicles with a manufacturer’s price of up to P600,000, P12,000 plus 20 percent of the excess over P600,000 for those with a price of P600,000 to P1.1 million, P112,000 plus 40 percent of the excess over P1.1 million for those with a producer’s price of P1.1 million to P2.1 million, and P512,000 plus 60 percent of the excess over P2.1 million for those with a price above P2.1 million.

The four luxury vehicles cited by AER will fall under the third tax tier in the new law and will be levied 20 percent, instead of the current highest rate of P512,000 plus 60 percent of the excess over P2.1 million.

For the poor man’s cars, AER predicts that their selling prices could go up.

For instance, the basic Toyota Vios 1.3, with a current SRP of P599,000, could see a price hike of nearly P11,000) while a P9,000 increase is projected for the cheapest car in the market, the Mitsubishi Mirage GLX, which is presently selling for P555,000.

A Toyota Fortuner 2.4G, with an SRP of P1.3 million, could sell for P1.505 million, or an increase of P119,000.

AER notes that the rates under the TRAIN law hew closely to those proposed by the Senate. The Department of Finance and the House of Representatives wanted higher rates.

A retired officer of the House of Representatives, who is now into buying and selling cars, said manufacturers could reduce their profit margin for vehicles for the mass market to keep prices down. 

As for luxury vehicles, he said prices are now falling.