Government mulls forex fluctuations in computing excise tax for vehicles

The government is considering the possibility of using the fluctuations in the foreign exchange rate as the trigger for the application of the excise tax on motor vehicles under the proposed bill that would amend the existing excise tax structure.

Finance Secretary Jose Isidro Camacho told reporters that the Department of Finance is in discussion with Congress on how to apply the excise tax on automobiles without burdening the industry excessively while still generating acceptable levels of revenues for the government.

The proposed indexation is under House Bill 5466 filed by Rep. Julio Ledesma which seeks to restructure the excise tax on motor vehicles based on the manufacturers’ wholesale price instead of the existing structure which bases the tax on the size of the engine.

According to Camacho, the proposal on the table is to use the foreign exchange rate as a trigger that would adjust the manufacturers’ price for each vehicle since the excise tax brackets are based on the manufacturers’ price.

Camacho said the DOF was concerned about raising revenues but it was also considering the tax burden on manufacturers and its impact on sales. "Obviously, it won’t be in our interest to make car manufacturers price themselves out of the market," Camacho said. "If there is no sale, we will have nothing to tax. Having said that, the government cant afford not to tax them right either. It’s this balance that we have to pin down."

Finance Undersecretary Cornelio Gison, on the other hand, explained that the committee is discussing three major points in the proposed legislation, namely: the transition period, the indexation and the definition of automobile.

Gison said the indexation of the excise tax based on forex fluctuation would set different percentage fluctuations that would, in turn, trigger the adjustment in the manufacturers’ price.

"We’re figuring out a way to reference it on forex rate and the basis is the manufacturers’ wholesale price," Gison explained. "If the forex fluctuates, the manufacturers‚ wholesale price will be adjusted and that will determine the bracketing for the excise tax."

Depending on which bracket a specific automobile will fall under, it would be taxed according to the schedule of taxes. So far, the tax brackets have not been changed, he said.

The tax brackets were set at three percent, 15 percent, 30 percent and 100 percent. This means that the more expensive the automobile, the higher the excise tax. Luxury vehicles would then be taxed more than lower-end vehicles.

At present, the excise tax is based on a complex technical criteria based on engine displacement instead of value. Vehicles are taxed from 15 to 100 percent depending on the size of the engine.

The proposed bill in Congress is expected to bring down the cost of entry-level vehicles since they would be taxed at only three percent compared to the present tax of 15 percent.

The bill, however, is being opposed by car manufacturers and high-end consumers since it would make expensive cars even more expensive. Such cars include gas guzzlers like sports utility vehicles, vans and Asian utility vehicles.