There is reportedly a growing consensus among lawmakers in the 17th Congress to pass into law bills on the proposed increase in excise tax for cars and other goods to raise greater amount of government revenues. While there may be such wide support for this proposed new tax-raising measures, they, however, could potentially hurt rather than help sustain the country’s economic growth.
The Philippine economy has been described as the fastest growing in Asia. Thanks in no measure for the sacrifices by Filipinos who bore much of these macro-economic and fiscal reforms implemented by previous administrations through the years.
In the first 100 days of the freshly installed administration of President Rodrigo Duterte, his economic team of advisers drew up new proposals increasing, if not introducing new tax bills as part of a fiscal reforms package. A number of these proposed new tax bills were submitted to the 17th Congress and now going through the legislative process.
One of these tax bills is the proposed excise tax on purchases of new cars. Among other reasons cited by proponents of this measure is the belief it will help reduce the number of motor vehicles on the roads. The unbridled number of motor vehicles is being blamed as major cause of the worsening traffic problem in Metro Manila and other highly urban parts of the country.
The higher tax as a way to ease traffic in Metro Manila by reducing demands and purchases of cars in the metropolis and outside is a simplistic way out of the traffic mess situation we’re in. In fact, it is widely opposed by many car owners and motorists, especially those from the provinces where traffic is not a serious problem.
Provincial car and motor vehicle dealers, in fact, are suggesting that if the issue behind the proposed higher excise tax has to do with the Metro Manila traffic, then the imposition should be limited to Metro Manila auto dealers alone. In other words, the solution proposed should cover the areas where the problem exists, which can be viewed as both fair and pragmatic, and less complicated and contentious.
It has been noted that automobile density in the country is still very low at 20 cars per thousand while other countries have around 60 cars per thousand. Obviously, it is Metro Manila alone where traffic-wise is highly congested.
As projected, a higher excise tax could mean a drastic spike in the price of cars and other motor vehicles from P130,000 for non-luxury cars to P2 million for luxury cars. At a time when the country’s automotive industry is enjoying an unprecedented boom, riding on the country’s new-found success in attaining the so-called motorization stage.
That success means basically that more and more Filipinos can well afford to purchase a car or motor vehicle for personal and business purposes. This phenomenon is quite evident in the countryside where remittances from overseas Filipino workers (OFWs) around the world have dramatically raised people’s lifestyle as business and investment expand to new heights.
Many OFWs invest their savings to purchase cars and motor vehicles and turn them into taxicab or rentals as livelihood to support income of their families. Never has there been a time, indeed, when more and more people are acquiring car and other motor vehicles for their business, leisure and other purposes. Ostensibly, this, in turn, has helped perk up the economy.
All this could be negated unnecessarily to a significant extent if a higher excise tax is imposed as proposed by the Department of Finance (DOF). This is one of the strategies drawn up by the DOF technocrats as a sure-fire formula to offset losses of state revenues on the plan to reduce both personal and corporate income taxes which President Duterte promised to support during the May 9 election campaign.
The DOF estimated the proposed increase can generate some P69 billion in additional revenues for the government. During the hearing of the Senate ways and means committee, chaired by Sen. Juan Edgardo “Sonny” Angara, Finance Undersecretary Dr. Karl Kendrick Chua justified the proposed tax bill saying it does not include buses, trucks, jeeps, jeepney substitutes and cargo vans.
Based on government studies, Chua admitted the imposition of higher excise taxes could lead to reduction of demand by as much as 20 percent. But added it will also “correct negative externalities” such as traffic congestion, pollution, and loss of productivity.
Other unfavorable factors that could even more weigh down people’s decision to buy cars are the increasing oil prices. This is not to mention the declining value of Philippine peso and other taxes that could further erode the buying power of Filipino consumers.
The intended consequence of lesser demands for cars and motor vehicles is precisely at the root of the strong pushback to the higher excise tax from leaders of the automotive industry.
Less demand means less business. Less business means less profit, it not loss, which could result in less job available. It should be noted that worldwide, the automotive industry is the second biggest employer. In the Philippines, this economic capacity can be compromised significantly if the higher excise tax is imposed.
The unintended consequences could run the gamut of economic and social setbacks. Business mobility will suffer. Economic growth could slow down as result. Small and medium sized entrepreneurs would be stifled.
It is not hard to imagine how the domino effect could bring about other unfavorable outcomes to the detriment of growth and development in the country.
As for the Metro Manila traffic, quite a number of courses of action have been propounded. These include the decongestion of Metro Manila, building and improvement of road infrastructures, creating a better public transport system and implementing stricter traffic discipline.
The Filipino dream of having his own car as a personal achievement and as means for life improvement need not be taken away from him.
Nor should the current economic growth of the country be stifled at a time when it is riding on a big momentum toward being a highly progressive economy.
Higher excise taxes for cars and other goods are not what the country needs now. Like any other not so well thought out measures, these taxes could stall the engine of our country’s economic takeoff while in full gear.