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NTRC TRJ-2: Restructuring the Excise Taxation of Motor Vehicles

The paper reviews the proposed reforms on excise taxation of motor vehicles as one of the sources of revenues to compensate for forgone revenue from the proposed lowering of the personal income tax (PIT). Historically, a three-tiered excise tax on automobiles ranging from 5% to 20% based on the manufacturer's or importer's selling price, net of excise and sales tax, depending on the engine displacement and fuel used i.e. whether it is gasoline or diesel fed, was first imposed in 1986 via EO 36. The tax was in addition to the then 30% sales tax imposed on original sale of automobiles except motor vehicles classified as trucks, jeeps and utility vehicles. In 1988, EO 273 prescribed a revised excise tax schedule for automobiles which was also based on engine displacement for gasoline and diesel fed automobiles. In 1997, Revenue Regulations (RR) 14-97 was issued implementing the provisions of Section 149 of Title VI of the NIRC, as amended, imposing an excise tax on automobiles and other motor vehicles. It defined "automobile" as any four (4) or more wheeled vehicle other than trucks specially designed for the transport of persons with a seating capacity of less than 10 adult passengers, including the driver. Subsequently, it was amended by RR 14-99 (October 13, 1999) and RA 9224 in August 2003. In 2003, RA 9224 revised the excise tax structure and based it purely on vehicle price regardless of engine displacement and type of fuel used. In particular, it imposed an ad valorem tax (AVT) based on the manufacturer's or importer's selling price, net of excise tax and VAT in accordance with the following schedule: EXCISE TAX ON AUTOMOBILES UNDER RA 9224 2003 - PRESENT Net Manufacturer's Price/ Importer's Selling Price Rate Up to PhP600,000 2% Over PhP600,000 to PhP1.1 million PhP12,000 + 20% of value in excess of PhP600,000 Over PhP1.1 million to PhP2.1 million PhP112,000 + 40% of value in excess of PhP1.1 million Over PhP2.1 million PhP512,000 + 60% of value excess of PhP2.1 million Under RA 9224, tax regime on automobiles was changed from pure AVT where the rate is directly applied on the price or value of the automobile to marginal tax rates applied to the excess of a pre-defined threshold vehicle price in the tax schedule (similar to income tax). Also, it effectively reduced the rates from the previous 15%-100% to 2%-60% and removed the distinction between gasoline and diesel-fed engines. A new definition of the term "automobile" was also provided under the Act, as any 4 or more-wheeled motor vehicle regardless of seating capacity, which is propelled by gasoline, diesel, electricity or any other motive power. Buses, trucks, cargo vans, jeeps/jeepneys substitutes, single cab chassis, and special purpose vehicles are not considered as automobiles. Available data show that from a high collection of almost PhP6.0 billion in 1996, the excise tax collection on automobiles went down to PhP4.1 billion in 1997 and further to PhP1.5 billion in 2003 under EO 273. With the full year implementation of RA 9224 in 2004, the collection hardly improved to PhP1.8 billion and remained more or less on that level up to 2009. Starting 2010, the collection hit PhP2.0 billion and more. Its percentage contribution to total excise tax collection, Bureau of Internal Revenue (BIR) collection, and Gross Domestic Product (GDP), has been decreasing from percentage ratio of 9.7% to 1.6%, from 1.1% to 0.2% and from 0.3% to 0.02%, respectively, from 1996 to 2015. All ASEAN member-countries impose "excise tax", "excise duty" or equivalent excise tax-like levy on motor vehicles (MV). In particular, the Philippines, Lao PDR, Thailand and Vietnam impose the excise tax while Brunei, Malaysia and Singapore collect the excise duty. Other member-countries have their own unique excise taxes: the specific tax on certain merchandise and service tax in Cambodia, excise tariff-luxury sales tax in Indonesia and commercial tax in Myanmar. These countries impose AVT rates based on the price or value of the MV. However, the Philippines is the only member-country that imposes marginal tax rates while all others directly apply the tax rates to the price or value of the MV. Brunei imposes a standard rate of 20% based on the value of the MV except for certain types of tractors which are taxed at 15%. Singapore also collects 20% excise tax except on motorcycles which are taxed at 12%. Myanmar applies two-tiered rates of 25% and 5% of selling price depending on the type of MV. Cambodia imposes three-tiered rates of 10%, 20% and 30% of ex- factory selling prices of automobiles based on their tariff headings and engine displacement. The higher the engine displacement, the higher is the excise tax. Hence, Indonesia, Lao PDR, Malaysia, Thailand and Vietnam also apply multiple tax rates depending on the type of MV and engine displacement. Thailand is the only country that imposes the excise tax based on the CO2 emission rate of each type of MV and engine. The higher the emission rate, the higher the excise tax rate. Indonesia, on the other hand, considers the seating capacity of the MV aside from the type of engine and cylinder in its excise tax structure. In particular, it levies higher tax on MVs used for transporting less than 10 passengers including the driver than on those with 10 up to 15 passengers and exempts MVs with 16 or more seating capacities. It is noted that the present tax of 2% on the first bracket under the Philippine tax schedule is the lowest compared with the 5% or 10% minimum tax rate in other ASEAN-member countries. The proposed increase in the minimum tax from 2% to 4% in the first bracket and from 20% to 40% in the second bracket will make the rates comparable with its ASEAN peers. Given the tax savings on personal income tax and low increase in the monthly amortization in case of car financing, buying a car in the first and second brackets will still be affordable among middle income employees. On the other hand, the significant increase in the proposed marginal tax rates ranging from 100% to 200% on high-priced automobiles under the third and fourth brackets will enhance the progressivity of the tax and is justified on the ability to pay of potential buyers.

National Tax Research Center
Authors Keywords
Lamberte, Mario B.; excise tax;
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