Inevitable rise in car prices

Jul 29, 2017

The business community can't stop talking about the proposed tax reform measure and its impact on the different sectors. Halfway into the year, there is still this big cloud of uncertainty on how the appropriate provisions will impact their industry.

Take the proposed automotive tax which everyone expects to happen next year. The two umbrella organizations governing the automobile companies in the Philippines have raised their legitimate concerns about the proposed excise taxes. CAMPI ( Chamber of Automobile Manufacturers in the Philippines Inc.), which counts the biggest car companies in the Philippines like Toyota, Mitsubishi Motors Philippines and Isuzu Philippines Inc., among others and AVID (Association of Vehicle Importers and Distributors) with its members like Chevrolet Philippines, Hyundai, Volkswagen, and Ford, among others lament the fact that their industry's concern was not considered in the approved version of the proposed tax reforms in the Lower House. Both organizations, CAMPI chaired by Atty. Rommel Gutierrez, Vice President of Toyota Motors Philippines and AVID chaired by Ms. Fe Agudo, President and CEO of HARI, franchise owner of Hyundai for the Philippines are now pinning their hopes on the Senate to address their concerns. They have submitted their position paper to Senator Juan Edgardo Angara, chairman of the Committee on Ways and Means and to Cong. Dakila Carlo E. Cua, his counterpart at the Lower House.

For ordinary car owners, the main concern of course is the price. Next year, it is almost certain that almost all if not all of the vehicles will have jacked-up prices. This may bode well for all the car companies in the short term. Many are now contemplating on moving forward their plans to change their old car with a new one this year to escape from the increased excise taxes next year. Sales are looking good for the rest of 2017 for all the car companies, but they are also looking at the long term effects of the new excise taxes, and with good reason. Automobile prices next year will be prohibitive, and this early, car companies are already steeling themselves for bad times ahead for the industry and reconfiguring their budgets. On the other hand, for ordinary vehicle owners, it may be wise to buy now ahead of the new excise taxes, but to raise the money to buy a new car, the old car must be sold first. Because new cars will be more expensive next year, second-hand cars will likely command better prices too, especially for those who simply cannot afford to buy a brand-new car anymore. Is it wise to hang on to your used car until next year when the new excise taxes finally pass both houses and just apply for a car loan to raise the full amount for the brand new car this year? Will the expected price difference on second hand cars next year be enough to offset the interest on the car loan? This is how the thought process goes for the ordinary car owner.

Should the proposed automobile tax get the nod of the Upper House, cars that are priced up to P600,000.00 will be taxed 3 per cent or a maximum tax of P18,000.00. For vehicles costing P600,000 to P1 million, the government will levy another thirty per cent on top of the P18,000 in excess of P600,000. This means a maximum tax of P168,000.00. For vehicles priced over P1.1 million up to P1.6 million, the tax will be P168,000 plus 40 per cent in excess of P1 million. For cars over P1.6 million up to P2.1 million, the maximum tax is P368,000 plus 50 per cent in excess of P1.6 million. We are talking of P618,000 on taxes alone. With this amount, an ordinary family can already buy a brand-new small car this year ahead of the new excise tax.

One can only imagine the taxes on higher-priced vehicles, so both CAMPI and AVID are proposing more realistic taxes. They are proposing that for vehicles priced over P2.1 million, the tax should be P618,000, with an addition of 80 per cent for vehicles in excess of P2.1 million. Vehicles priced at P2.6 million up to P3.1 million should thus have a maximum tax of P1.018 million, plus 80 per cent in excess of P2.6 million.

The DOF has stipulated seven tax brackets in the proposed tax reform measure: P600 K - P1 million; over P1.1 million up to P1.6 million; over P1.6 million up to P2.1 million; over 2.1 million up to P2.6 million; over P2.6 million up to P3.1 million; and over P3.1 million which is the seventh bracket. For this bracket, the maximum tax will be P1.418 million plus 90 per cent in excess of P3.1 million.

Many say that having prohibitive automobile prices will ultimately lessen the automobiles on the road and may be the answer to our traffic woes. Singapore has taken a different approach to taxing automobiles with the end in view of easing traffic on this small but highly progressive island nation. The second, third and fourth cars that one purchases in Singapore, will have progressively prohibitive government taxes. And this scheme seems to work there.

Admittedly, the government badly needs to raise taxes for its ambitious infrastructure projects. The "Golden Age of Infrastructure" is going to be President Duterte's legacy, and I for one hope that this is going to happen in my lifetime because this is what the country needs if we are to remain competitive, at least in the region. However, the automobile companies' concerns are also very legitimate and must be considered at the Upper House. If the automobile taxes were railroaded for quick passage in the Lower House, we hope the Upper House will take its time to study and deliberate on the proposed measure.

Mabuhay!!! Be proud to be a Filipino.

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About the Author

Ray Butch Gamboa graduated from the College of Arts and Letters of the University of Sto. Tomas. It was a course that should have been preparatory to a law degree, but the call of broadcasting aborted his plans.

At the age of 16, while still a student, Butch tried his hand at disc jockeying, landing a job at Mareco Broadcasting Network's AM stations DZBM and DZLM. From there, Butch moved on with his illustrious career as a popular disc jockey, riding the airwaves of Bob Stewart's middle-of-the-road music at DZXX, and ending his disc jockeying career at ABS-CBN's DZYL and DZQL.

From there, he stayed on with ABS-CBN, covering live the proceedings at the Manila Stock Exchange and eventually entered into the world of television sales as an account manager for the premier channel of ABS-CBN Channel 2.

In the early 70's, at the outbreak of Martial Law, Butch was one of the thousands of professionals who woke up jobless when then President Marcos declared the new status of the nation. With the closure of ABS-CBN, Butch ventured into different fields outside of broadcast. He tried his hand and with ease and success at export (Costume jewelry), real estate (brokerage), and restaurants (fast food).

In 1987, after the revolution, with the broadcast industry back to its free state, and with its irresistible call ringing in his ears, Butch made his inevitable comeback and pioneered in a local motoring show, producing Motoring Today on Channel 4 and co-hosting with local motor sports' living legend Pocholo Ramirez.

After 4 years, he ventured into another pioneering format by producing and hosting Business & Leisure, which was originally aired on ABS-CBN's Channel 2. The format eventually espoused similar ones in other different channels. But the clones in due course faded away leaving the original staying on airing on Channel 4 and eventually on Shop TV on Sky Cable's Channel 13.

The following year, the pioneering spirit in Butch spurred him to produce another TV show, Race Weekend, also on Channel 4, covering circuit racing at the Subic International Raceway after the motor sport's hiatus of 17 years. But when similar shows with duplicated formats sprouted, he decided to give way and ended the program after a year, although still enjoying unparalleled viewership.

In 1998, when the local automotive industry was in a slump, Butch contributed his share to help the ailing industry by producing another popular motoring-related show, this time exclusive to the automobile and its industry—Auto Focus, which became a vehicle for local automotive assemblers and importers to showcase their products and dwell on the industry's latest technological developments.

In 2003, Butch teamed up with his brother, Rey Gamboa who was a former Shell executive and presently one Philippine Star's business columnist to co-produce and co-host the TV show Breaking Barriers on Channel 13. It is a talk show that features guests who are in the news and in the middle of controversies. The program ventures to draw deeper insights into current issues to learn how they impact to our daily lives.

Today, Motoring Today on its 28th year of service to the general motoring public still enjoys its unprecedented loyal vierwership nationwide while Auto Focus, after 16 years has firmly established its niche viewership among automobile enthusiasts and on the other hand Business & Leisure is on its 24th year dishing out current business issues and lifestyle features.

Today, aside from writing weekly columns for the Philippine Star (Motoring Today on Wednesdays and Business & Leisure on Saturdays) and executive producer / host of weekly TV shows (Motoring Today, airs Sundays on Solar Sports Channel 70, Business & Leisure, airs Tuesdays on Shop TV, Sky Cable Channel 13 and Auto Focus airs Thursdays on Shop TV, Sky Cable Channel 13, Ray Butch Gamboa is currently the Chairman and CEO of Sunshine Television Production and Marketing Services Corp., President of Gamcor Management and Development Corp., Chairman of Asia-Pacific Realty Corporation, President and Chairman of Socio-Communication Foundation for Asia and Founding Chairman of the Society of Phil. Motoring Journalists (SPMJ)