A U T O     B U Z Z

Philippines' BOC Clarifies Tax Status for Projects in Ecozones

MANILA - Domestic sales by participants in the government's Motor Vehicle Development Program (MVDP) located in the economic zones should be hit with a 3 to 7 per cent tariff if within the allowable threshold, and a 30 per cent tariff if they transgress beyond the threshold.

This ruling was issued by the Bureau of Customs under Administrative Order No. 1-2003 to clarify the tax status of completely built-up (CBU) packs assembled from imported completely knocked-down (CKD) packs by participants of the MVDP.

Under the existing rules, enterprises located inside the ecozones are allowed only up to 30 per cent of their total production to be sold in the domestic market and the 70 per cent for exports.

To clarify the issue, AO No. 1-2003 said that CBUs assembled from CKDs by MVDP participants located inside the ecozones, shall upon withdrawal for local sales be assessed the corresponding CKD tariff rates and not the tariff rates for CBUs.

Those in excess of the threshold 30 per cent shall be assessed the corresponding tariff rates for CBUs.

At present, the CKD rate is 7 per cent for cars and three per cent for commercial vehicles, while the CBU rate is 30 per cent.

The BOC clarification was issued after BOC's collection district in Laguna sent Ford Motor Co. Phils. Inc. a demand letter for the payment of P488.557 in unpaid taxes for the importation of 4,366 vehicles for about three years now.

Ford, located in the Greenfield Automotive Park (an ecozone) in Laguna, was found to have been importing Ford Lynx, Ford Ranger and Ford Escape for which the company paid CKD tariff rate instead of CBU rate.

Laguna Customs Collector Edward Baltazar said that by paying CKD rate, Ford has "deprived" the government of about P40,000 to over P100,000 in taxes per vehicle.

With the issuance of the Customs' AO, the tax issue between Ford and the local Laguna office of the BOC would be settled.

But it could not be ascertained if the 4,366 vehicles questioned by the Laguna BOC is still within the 30 per cent threshold of the total production allowed for local sales and be granted 3 to 7 per cent tariff rate.

Had such a volume of vehicles already breached the threshold then these should have been slapped with a 30 per cent CBU tariff.

Nonetheless, Secretary of Finance Jose Isidro N. Camacho said the A.O. has been adopted to provide a level playing field for all MVDP participants.

In addition, the AO also recognized the intent of Executive Order No. 156, issued on December 12, 2002, to support the motor vehicle industry as a significant sector in economic development.

E.O. 156 envisions to transform the Philippines as an ASEAN hub for certain motor vehicle parts and components.

"To realize this vision, it is imperative to keep existing motor vehicle assemblers/exporters in the country and to attract new ones," the A.O. stated.

The A.O. has recognized that sales to the domestic market is considered an important component in the choice of regional manufacturing bases by vehicle makers to achieve optimal production volumes.

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