Senate TRAIN bill on auto tax regressive; threatens auto industrial policy – Action for Economic Reforms

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A Vios sees action at this year's Toyota RoadTrek in Siargao. Monthly sales of automotive vehicles among members of the Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) and Truck Manufacturers Association (TMA) breached the 40,000-mark in November this year. FILE PHOTO

MANILA – Fiscal policy reform advocacy group, Action for Economic Reforms (AER), warned on Wednesday that adopting the automobile excise tax schedule proposed under the Senate version of the Tax Reform for Acceleration and Inclusion (TRAIN) would hurt the middle class more than the rich, and would adversely affect the country’s Comprehensive Automotive Resurgence Strategy (CARS) program.

The approved auto excise tax amendment in the Senate Bill 1592, which was introduced by Senator Ralph Recto, reduces the number of auto excise tax tiers from four to two. Cars with manufacturing price of up to PhP1 million will be slapped a 10% tax, while those that cost more than PhP1million will be taxed 20%. This means a fourfold increase in the tax rate of basic cars costing not more than PhP600,000, which are currently taxed at 2%.

“Adjustments in the automobile excise tax are long overdue, but we urge the members of the bicameral committee conference on TRAIN to uphold the principle of progressivity and fairness. Equity dictates that we should tax luxury vehicles more than basic cars,” said Jo-ann Diosana, AER’s Senior Economist.

Diosana noted that the House version, which proposes to increase the excise tax rates of basic cars to 4% and higher increases for high-end cars, is more progressive than the Senate version.

AER estimates that the Senate version would add anywhere from PhP40,000 to PhP50,00 to the price of basic cars like Mirage, Vios, and Honda City, higher than the estimated increase in the House version, which ranges only between PhP10,00 and PhP30,000. In contrast, luxury cars would enjoy lower excise tax under the Senate proposal. With the proposed 20% excise tax, a BMW car currently priced at PhP11M would now be priced lower at PhP9.3M.

“The Senate version gives huge discounts to luxury car buyers, and shifts the burden to the middle class. Bulk of the PhP16 billion estimated revenues from automobile excise tax is expected to come from low-end vehicles,” Diosana explained.

The Senate version also undermines the CARS program, one of the industrial policies implemented to revive the country’s car-manufacturing sector. According to AER Fellow Jenina Joy Chavez, CARS give modest incentives to car manufacturers that comply with strict performance standards. The heavy burden SB 1592 places on low-end cars effectively eats up this incentive. “Not only is the Senate version inequitable for the middle class, it also has a potentially crippling effect on the basic car manufacturing sector, endangering local car parts suppliers and their workers,” said Chavez.