The Minimum Industry Profit Margin is set by the Bureau of Internal Revenue as stated in Revenue Regulations No. 25-2003. Realistically though, profit margins would vary from manufacturer to manufacturer, product to product and even variant to variant. Would the revised excise tax scheme bring out loopholes such as bringing out ‘barebones’ variants and having dealers fit optional items as accessories? Not so, according to the aforementioned revenue regulation. It states that the selling price shall always include the value of the air conditioner, radio and mag wheels including installation, whether or not they were actually installed on the vehicle at the time it leaves the assembly plant/warehouse and before it reaches the customer. Likewise, removable accessories such as wheel covers and the installation cost thereof are considered part of the selling price. In a nutshell, vehicles that used to enjoy exemptions such as pick-up trucks, passenger vans, AUVs (Asian Utility Vehicles) and SUVs (Sport Utility Vehicles) will no longer have the same privilege as they did before. On the other hand, passenger cars of every class from economy to luxury will enjoy a more favorable excise tax that’s not too taxing; pardon the pun, on the vehicle’s engine displacement.
Will Republic Act 9224 kill the goose that laid the golden eggs? No. In fact, this will make the automotive scene more exciting in the years to come. Opportunities for manufacturers/importers that have never existed before have been opened. With the Asian Free Trade Agreement or AFTA, economies of scale can be used to source parts from cheaper places, which in turn could push costs lower and profits higher. Will this cause some assemblers down the road of bankruptcy? No. Some, such as those whose product line is majority commercial vehicles may find it hard at first, but with the right market reorientation they will flourish. Besides, the new system will allow more dynamism by removing barriers that crippled them before. Will this reduce our ballooning budget deficit? Surely. All vehicles regardless of seating or cargo lugging capability will pay taxes, even if the tax brackets have been significantly reduced compared to the old excise tax system. In the end, a bold prediction could actually foresee the Philippines to adapt an automobile industry that’s fairly similar to other nations, particularly the United States. Where engine displacement and seating capacity are no longer issues, emergence of new market segments is highly possible. For instance, small bodied sedans such as the Ford Lynx and Honda Civic may inherit bigger engines (they already do in some countries). At the same time, long time protected product lines may see vast improvements just to survive the slew of newer and better equipped choices. With the amount of choices that will be made available soon, vehicle buyers couldn’t be happier. Sources:
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