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Estimated price of mainstream PH pickup after excise taxes are applied
By Nidz Godino
“This scheme allows manufacturers to circumvent provision of the law and purpose of the exemption,” finance secretary Benjamin Diokno said in 2017, government imposed new excise tax rules on all automotive vehicles. The ruling which spurred buying spree prior to its implementation essentially reduced taxes paid for lower-priced vehicles, but raised taxes for models in upper bracket.
During 2017 round of tax reforms, pickups were granted full exemption from excise tax because government believed these vehicles are “workhorses” of small businesses. The decision stemmed from government’s desire to support growth of micro, small, and medium entrepreneurs (MSMEs).
Lately, some government officials have begun changing their tune. Just last month, the Department of Finance (DOF) along with Department of Trade and Industry (DTI) started pushing for removal of this exemption.
In a letter to the House of Representatives, the DOF said DTI has observed that manufacturers modify pickup trucks to serve as passenger, leisure, or sports utility vehicles.
Should this be signed into law, the new excise taxes on pickup sales will give government additional P53 billion in revenue. Under 2017 tax reform, adjustment of automobile tax rates are 4% (for automobiles up to P600,000); 10% (for automobiles above P600,000 to 1 million); 20% (for automobiles above P1 million to 4 million); 50% (for automobiles above P4 million).
In the case of pickups priced above P1 million, taxes would amount to 20% of the net manufacturing price. This means that P1 million pickup unit would be priced at P1.2 million following the removal of the excise tax exemption.
Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said a repeat of 2017 “front-loading” of purchases before effectiveness of these higher taxes may happen.
Ricafort warned of possible constraint: lack of supply for some models due to some disruptions in the global supply chains since pandemic started.
Thinking you can avoid all price increases by buying secondhand,all these developments in the brand-new pickup segment are also expected to affect prices in the secondhand market.
“Higher taxes that lead to higher prices coupled with supply constraints would also lead to increased demand in the used/secondhand market for pickup trucks and other utility vehicles…this could also lead to higher prices in used vehicles, ” the economist said.
Currently, bill is in the Lower House and still has long way to go before being passed into law. But Philippine automotive industry has already expressed concern about potential impact on pickup demand.
To come up with figures, we first subtracted 12% value-added tax (VAT) from pickups’ SRPs. This is because excise tax is applied before VAT is implemented. From there, we added excise tax corresponding to price of each model (10% for units below P1 million and 20% for those above).
Once we determined price of each truck with new excise tax applied, we then applied 12% VAT and computed price difference.
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