R I G H T    L A N E

Check out any website, newspaper or even your local news channel and it doesn’t take a rocket scientist to find out that the latest buzz in the automotive scene is not the introduction of some snazzy new vehicle or even the entrance of a new luxury car make.  In fact, it has nothing to do with one specific manufacturer/importer, and yet, its effects are far reaching—touching everyone from suppliers to assemblers to buyers: the revised vehicle excise tax.

Formally known as Republic Act 9224 (An Act Rationalizing the Excise Tax on the Automobile), it has been met with excitement and criticism from the different players, and there’s no wondering why.  On one hand, it creates a more balanced market for importers/assemblers of passenger cars at the expense of reducing the protective shield enjoyed for so long by light commercial vehicle assemblers.

However, is plugging the gap in the excise tax system really going to help raise much needed revenue for the government, or will it be the case of killing the goose that’s been laying the golden eggs?

The previous excise tax system, which is Section 149 of the National Internal Revenue Code of 1997, is primarily based on engine displacement.  Depending on the type of propellant used (gasoline/diesel); the tax could be as low as 15 percent to as high as 100 percent.  Vehicles, which are used in the transport of goods (pick-ups, etcetera) or people (AUVs, vans, etcetera) are exempted.

During the Asian Crisis, this system made a lot of sense.  With oil prices steadily going up in the world market and the peso-dollar exchange rate slipping rapidly, the government thought it would be logical to reduce oil consumption and heighten awareness for fuel conservation by rewarding vehicles with lower petrol consumption, and/or those which could ferry more people such as those used in carpools.

However, this system presented a huge loophole.  At its height, close to 70 percent of new vehicle registrations were not paying excise tax, thanks to Filipino ingenuity.  According to the government, the reason for this is that most, if not all manufacturers, were guilty of using the ten-seater technicality to come up with so-called troop carrying capability in vehicles with an exterior size akin to a sardine can.

Now, the tale’s different.  After constantly being pushed by several manufacturing player under the flag of globalization, the government decided to drum up a system that would address this issue by re-thinking the way they slapped excise tax on vehicles.

Instead of using a vehicle’s engine displacement, seating capacity or drivetrain (4x4, 4x2), the tax will be computed off the manufacturer’s or importer’s selling price net of excise and value-added tax.  A common misconception is to compute the effective price of a vehicle depending on the ‘pre-excise’ list price minus the old excise tax scheme then adding the new one.  In truth, the excise tax comes from the price offered for sale by the manufacturer or importer to their respective dealers.  Assuming that the cost of manufacturing did not change from 1997 to the present, it could theoretically be computed as follows:

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