SOURCE: Press and Public Affairs Bureau
The House committee on ways and means began discussions on bills seeking to raise excise taxes on automobiles as part of the tax reform, revenue-generating proposal of the government, with panel chairman Rep. Dakila Carlo Cua (Lone District, Quirino) asking the automobile industry to do a market research on what price or tax level will change the consumer’s decision to buy an automobile.
The higher excise tax proposals are found in Chapter VI of both House Bill 4774 authored by Cua and HB 4688 by committee vice chairman Rep. Joey S. Salceda (2nd District, Albay). The bills aim to create a tax system that is simpler, fairer and more efficient, characterized by low rates and a broad base that promotes investment, job creation, and poverty reduction.
“We urge the concerned sector, the automobile industry, to do it scientifically, and for them to do the market research and be able to identify the tipping point as to the optimal tax. Tulungan ninyo kami para makuha natin iyong optimal tax para hindi mamatay iyong industriya,” said Cua.
Cua said it is necessary to calculate the tipping point in the behavioral change of a consumer to determine at what price or at what tax level will change his or her decision to buy an automobile. “Saang presyo o saang tax level magbabago iyong pagbili ng consumer. Has there been an analysis?,” said Cua.
Cua said after the tipping point has been identified, this will be compared with the data presented by the Department of Finance (DOF).
“We will see which data is more reasonable, more sound, and we will go back to evaluating. But again, please use research, facts and data,” Cua urged the automobile sector.
In response, DOF Undersecretary Karl Chua said based on historical data, the price elasticity of car demand is 1, 1.2, which means that for every one percent increase in the price that could come from the tax, demand would fall by 1.2 percent.
However, Chua said the income elasticity of car demand is higher at 1.5. So for every one percent increase in income, the demand for car sales goes up by 1.5 percent.
Chua said there is no tipping point at the moment precisely because of the expected lower income tax rates. “Given that the income elasticity is higher than the price elasticity, and we are still going to give more income to the people in the form of lower income tax, we think that the first three brackets are still going to be affordable. What may be affected could be the high end or the luxury (automobiles) because the tax will be significantly higher. But we think that given the economy doubled in the last 10 years, the stock market doubled also, this is a lot of wealth also for the rich and we think that this could be managed," he said.
Cua said if excise tax rates will be imposed on high-end luxury cars, buyers who have houses abroad will opt to buy abroad because of lower tax rates, thus will cause foregone revenues. “If you put it in a level that is too high, they will buy in another market and not our market, and really will not contribute to your revenue (generation). What I am asking is if you can make an educated study so we can determine what is the optimal level,” Cua told the DOF.
Cua requested the DOF, Chamber of Automotive Manufacturers of the Philippines Inc. (CAMPI) and the Association of Vehicle Importers and Distributors (AVID) to conduct the tipping point studies.
“Because for me, it is really the revenue. For all we know, since we’re lowering income tax rates, it might result in a bigger boost for the car industry. Hindi natin masabi, people might opt to buy new cars but what we are trying to get here is to raise revenues for the government at least through the automobile,” said Cua.
House Deputy Speaker and AAMBIS-OWA Party-list Rep. Sharon S. Garin shared Cua’s viewpoint. She said the tax reform package is related to the lowering of income tax, hence, the savings of people will increase and enable them to buy vehicles.
Garin said there should also be a calculation on the increase in excise tax in relation to the probable decrease of corporate income tax of the automotive industry.
“Baka ma-offset naman iyon kasi kokonti na iyong benta nila considering everybody now is scared of buying kasi malaki daw iyong increase sa excise tax. But have all these factors been considered since there is an elasticity of demand here. At a certain point, people might stop buying automobiles and the income of the automotive industry will decrease, hence the corporate income tax naman will be lowered,” said Garin.
Garin said the automobile industry players should give their comments on the DOF’s calculation of 1.2 and 1.5 elasticity of demand.
Zubiri said in reality, if one would buy a vehicle and the excise tax went up on cars, he or she would opt for a lower model. He said sales would still be there but on premium types of cars. “Sales may go down. It’s just a matter of what type of vehicle (you are buying). You are looking at the short-term effect,” said Zubiri.
Zubiri said there is no long-term effect if all the benefits of the proposed taxation will not go back to the people.
Rep. Roger “Oging” G. Mercado (Lone District, Southern Leyte) said while it is true that the government needs more funds, it is Congress that is put to task in explaining the higher taxes to the people.
“It seems it is the members of Congress who are the ones harassed and blamed every time there are basic issues and policies made by our administration. We want to solve poverty, we want to have inclusive growth, but the effect will be on the poor, not on the automobile sector. It is the buyer of the car who will bear the effect of higher taxes because the automobile sector will just pass on the amount of tax that will be levied on the industry,” said Mercado.
Mercado asked how can the country achieve inclusive growth if cars are not affordable. He also asked how can peoplel’s income be raised if the oil price is very high. “I would like to know if the President has been fairly briefed on the reasons for this tax reform package because if I were the President, I will not allow this because I am concerned for the poor,” said Mercado.
Finance Secretary Carlos Dominguez III said what Chua was driving at is that for every one percent increase in somebody’s income, there is a 1.5 percent increase in car demand, for every 1.2 percent increase in car cost.
“Demand will fall also by so much, so it’s a moving thing. Now for car manufacturers, their main concern I think is if the tax is added. If the tax is increased, their 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 a price elasticity of demand,” Dominguez said.
National Tax Research Center (NTRC) Executive Director Trinidad Rodriguez expressed support for the bills, saying the current schedule is still unchanged since 2003, pursuant to Republic Act 9224 or An Act Rationalizing The Excise Tax On Automobiles.
“The Philippines imposes the lowest minimum tax rate of two percent compared to other ASEAN countries which imposes a minimum of five, 10, 15 or 20 percent in their respective excise tax schedule. The top rate of 60 percent is likewise low compared to Lao PDR’s highest rate of 150 percent, Indonesia’s 125 percent and Malaysia’s 105 percent, which are imposed on heavy vehicles,” said Rodriguez.
Rodriguez said the 60 percent top marginal rate applies to the price of vehicle in excess of over P2.1 million. Effectively, she said it is only equivalent to about 52 percent when directly applied to automobiles with net manufacturing price of P10 million; 45 percent effective tax rate when applied to a net manufacturing price of P5 million; and only 30 percent effective tax rate when the net manufacturing price is about P2.5 million.
CAMPI President Rommel Gutierrez and AVID President Maria Perez-Agudo said they support the intention of the bills, but expressed concern over the negative effects of higher excise taxes on automobiles. Agudo said the industry might be forced to pass on to the consumer the higher excise taxes. Other possible dire effects are lower sales, slower industry growth, and displacement of workers.
Under Cua’s HB 4774, the excise tax for automobiles shall 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 P600,00 to P1.1 million, the tax rate shall 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 shall 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 shall 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.
Meanwhile, under Salceda’s HB 4866, the excise tax for automobiles shall be raised to five 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 shall be 20 percent of net manufacturing/importation price.
If the price is over P1.1 million to P2.1 million, the tax rate shall be 40 percent of net manufacturing/importation price.
Lastly, if the price is P2.1 million, the tax rate shall be 60 percent of net manufacturing/importation price. / ICY JR