Dominguez allays fears on negative impact of auto excise tax hike

Finance Secretary Carlos Dominguez III on Monday assured lawmakers that the increase in automobile excise taxes would not affect the sales of cars in the country.

Dominguez attended the ways and means committee hearing at the House of Representatives to allay lawmakers’ fear that the increase of automobile excise tax under the Department of Finance’s tax package would also dampen car sales.

Dominguez said with the tax package proposal of lowering personal income tax, consumers would have more savings to buy cars even though the increased automobile excise tax would be imposed.

READ: DOF files tax reform package, seeks reduction in income tax 

“For every one percent increase in somebody’s income, there is 1.5 percent increase in car demand. For every 1.2 percent in car costs, demand will fall by also by so much. So it’s a moving thing,” Dominguez said.

Dominguez also allayed fears of car manufacturers that the increase in automobile excise tax would result in lower car sales.

“So for the car manufacturers their main concern is that if the tax is added or the tax is increased, sales will tend to go down. However, we are saying also that because incomes are going to go up, I think that should offset the chances that sales will go down since there is price elasticity through demand,” Dominguez said.

Dominguez said lower interest rates and a booming economy provide favorable conditions for consumers to purchase cars despite the automobile excise tax hike.

“Financing is available. We’re awash in cash. Interest rate is low. Taxation is relatively lower compared to other countries,” Dominguez said.

“I think there is a lot of room for increasing revenues for government by adding taxes on cars,” he added.

READ: Higher taxes could derail auto industry’s resurgence

For her part, Association of Vehicle Importers and Distributors president Maria Fe Agudo said the proposed progression in the automobile excise tax is too “heavy” for the motor vehicle industry to bear.

“The motor vehicle industry will not be able to bear the resulting burden having to pass or share this to consumers and therefore suffer from market loss due to corresponding progressive increases in the prices this may in turn restrict inclusive access to transport and mobility,” Agudo said.

READ: Auto tax hike seen bad for industry

Agudo said the market losses due to increased automobile excise tax would adversely affect job opportunities “arising from drop in consumer demand.”

Agudo said to mitigate the risks, AVID is proposing to increase the number of tiers from four to seven involving the 3rd and 4th brackets which are the “most hard-hit” brackets.

Southern Leyte Rep. Roger Mercado called the tax package proposal on automobile excise tax hike anti-poor.

“We want to solve poverty. We want to have inclusive growth, but the effect will be on the poor. It’s not the automobile sector, it’s the buyer of the car,” Mercado said.

“The automobile sector will pass on the amount of tax that will be levied on the industry,” he added.

Finance Undersecretary Karl Kendrick Chua said the automobile excise tax hike would primarily affect the higher social classes which can afford to buy cars.

He added that the progressive rate on automobile tax would not make a significant impact on the buyers, especially because the DOF tax package also provides for lowering the personal income tax.

“We don’t see any significant impact if the same buyers will benefit from the significant increase in income,” Chua said.

National Tax Research Center executive director Trinidad Rodriguez said the proposed increase in automobile excise tax from two percent to four percent for net manufacturer’s price/importer’s selling price of up to P600,000 is among the lowest in the region.

“The Philippines imposes the lowest minimum tax of two percent, compared to other Asean countries which impose a minimum of five, 10, 15 or 20 percent on excise taxes,” Rodriguez said.

Under the DOF’s tax package under House Bill 4774 filed by Quirino Rep. Dakila Cua,  the provision titled “Excise Tax on Miscellaneous Articles” provides that there shall be levied, assessed and collected an ad valorem tax on automobiles based on the manufacturer’s or importer’s selling price, net of excise and value-added tax.

The excise tax for automobiles will be raised to four percent from the present two percent if the net manufacturer’s price/importer’s selling price is up to P600,000.

If the price is P600,000 to P1.1 million, the tax rate will be P24,000 plus 40 percent of value in excess of P1.1 million. The present tax rate is P12,000 plus 20 percent of value in excess of P1.1 million.

If the price is over P1.1 million to P2.1 million, the tax rate will be P224,000 plus 100 percent of value in excess of P1.1 million. The present tax rate is P112,000 plus 40 percent of value in excess of P1.1 million.

Lastly, if the price is P2.1 million, the tax rate will be P1.224 million plus 200 percent of value in excess of P2.1 million. The present rate is 512,000 plus 60 percent of value in excess of P2.1 million.

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