BOI bucks Senate proposal on automotive excise tax

The government has expressed reservations over a proposal in the Senate to raise the floor price in the vehicle tax base from P500,000 to P750,000 because this would lead to a substantial reduction in tax collections.

"The government would suffer a net loss from a higher floor tax and I’m sure the Department of Finance would also oppose a higher price base," Board of Investments managing head Gregory Domingo said.

The proposal to raise the cut-off price for vehicles that would get the minimum three percent tax was part of a compromise deal to approve the much-delayed automotive tax reforms.

Based on the pending bill in the Senate, all vehicles worth between P500,000 and P1 million have to pay an excise tax of P15,000 plus 15 percent of the value in excess of P500,000.

The Senate has committed to pass the bill before its session ends on June 5. It is under pressure from the Department of Finance to approve the bill or else the new tax rates under Revenue Regulation 4-2003 would take into effect and distort vehicle sales.

The DOF is eager to boost its collection of automotive taxes by P1.14 billion a year as Asian utility vehicles (AUVs), vans and sport-utility vehicles start paying taxes. AUVs are currently exempt from excise taxes under the Bureau of Internal Revenue’s 10-seater rule which excludes vehicles with a seating capacity of at least 10.

The automotive industry raised P2.5 billion last year from the collection of taxes mainly from passenger cars that accounted for 30 percent of the total unit sales during the period.

Senators Sergio Osmeña and John Osmeña have strongly opposed the vehicle tax reforms unless these measures retain the incentives granted to AUVs which they believe is a potential export winner.

Aside from lowering the base vehicle price, the Senate is also reviewing a proposal to cut the minimum tax rate from three percent to one percent in order to lower the tax burden on AUVs.