Don’t buy that Mercedes Benz just yet

If you are thinking of buying an AUV soon, do it now or pay more later. But if you are thinking of buying a Mercedes Benz, procrastinate a bit.

Last week, the head of the Board of Investments, a certain Gregory Domingo said the government (as if the BOI alone is government and the Senate isn’t) would fight a Senate proposal to lift the floor for exemptions to the excise tax on AUVs from P500,000 to P750,000. With no sense of courtesy towards another branch of government, Domingo publicly called the Senate proposal useless, same as telling legislators they are idiots for even proposing it.

This BOI bureaucrat who would raise the price of a vehicle that is affordable to the Pinoy middle class would however, lower the taxes on luxury vehicles like a Mercedes Benz. Based on Senate records, I understand that a Mercedes Benz 320 sedan will see its price drop by 35 percent or from P7.65 million to P4.9 million. This Domingo must be a disciple of George W. Bush who gives tax breaks to the rich even as he screws the working class.

I now wonder, if this so called vehicle tax rationalization bill pending in Congress is supposed to raise tax revenues for government, why are we dropping the taxes on luxury cars? If this BOI bureaucrat explains that revenues lost on luxury cars will be made up from AUVs that comprise some 50 percent of the car market, then I will conclude that these bureaucrats are more anti-people than we feared. Why should we tax the working class some more when they are already overtaxed as it is?

The AUV is the most practical and affordable vehicle for the middle class. It can be used for the family and for the family business. Those FX taxis, whose drivers infuriate us with their bad driving, is on the positive side, a good expression of Pinoy grassroots entrepreneurship. It helps many middle class families make ends meet in these trying times.

Additionally, those AUVs have a large amount of local content. What our geniuses at the Board of Investment should be doing is lavishing the manufacturers with incentives so that we can produce more of these vehicles for export to other ASEAN countries. I am sure these Pinoy AUVs would work just as well in the region. That will also maximize utilization of idle capacity that should help bring down the cost of these AUVs.

The problem with AUV taxes came about after Honda managed to sneak through the reclassification of its latest CRV model as an AUV, thanks to the so called ten seater rule (as if you can seat ten in that CRV model). It is also this stupid rule that ex- empts those monstrous Expeditions from paying excise taxes. The simple solution is to get that ten seater rule revised or rescinded. They don’t have to overhaul the tax code. Yet the BOI approved Honda’s application and caused over P1.5 billion in tax losses, something they now want genuine AUV buyers to absorb and more.

I don’t think those government geniuses thought their proposal through or they have serious conflict of interest we don’t know about. They have already changed the basis of the excise tax from engine displacement (something that is not possible to cheat) to selling price (which is easily manipulated).

That’s a big loophole, now being exploited in Subic. You can get a friend in California to "sell" you a Jaguar for $1000 and it seems our Customs people will have no choice but to respect that valuation for tax computation. In the same manner, the big car companies can import completely built up vehicles and underprice the declaration and the National Treasury is legally screwed.

As I had written in this column some weeks ago, engine displacement is a good basis for taxing vehicles. This takes into account energy efficiency. These misguided bureaucrats say this old system allows a BMW316i to be taxed less than a Honda Accord.

So what? The 1600 cc engine of the BMW 316i is more fuel efficient than the Accord’s 2-liter engine. When I was buying my car some six years ago, I was choosing between the Accord and the BMW 316i. I chose the 316i and I am glad I did for performance and fuel efficiency.

Who needs a more powerful car in Manila’s traffic anyway? More important, I believe a developing country like ours should value energy efficiency, even when there is no international oil supply crisis. We can use the saved forex for other urgent development needs.

In this vein, it is scandalous that BOI will lower the taxes on Jaguars, Benzes and BMWs with oversized engines by more than a couple of million pesos each. Not only do these engines use more fuel than necessary and contribute more to air pollution, they also aggravate our already explosive social class tensions. On a macro economic perspective, encouraging the elite to buy these cars is simply bad allocation of scarce national resources, even if the elite can afford it.

The Senate should scrutinize that proposal and make sure the resulting law is an improvement over the current situation. Our elected representatives in Congress should provide the common touch, something our Ivy League educated bureaucrats seem to have no idea of.

PAL soars

Even as other Asian airlines are suffering tremendous pain with the SARS epidemic, it seems that our already downsized Philippine Airlines isn’t doing that badly. During Ray Orosa’s birthday party, Tony Carreon, one of Lucio Tan’s closest aides, told me that our flag carrier even had to put in an additional flight a week to Vancouver, Canada.

Tony’s son working for Cathay Pacific, as with the rest of Cathay’s Vancouver staff, are forced to go on a one week leave without pay every month due to the reduced flights. Going to Hong Kong is not that attractive a proposition these days.

In fact, those who must really get to Hong Kong on days that Cathay is not flying end up taking PAL to Manila for an easy connection to Hong Kong. If this goes on, Manila may yet end up being an important regional hub.

And of course, all the American West Coast flights of PAL are fully booked. The direct flight advantage works at this time when not too many are inclined to stop over in Hong Kong or any other Asian capital and risk exposure to SARS at the airport. Yet, PAL economy class fare of over a thousand dollars is $300-$400 more expensive than flights that require a stopover in Hong Kong or Tokyo.

Well, the airline can certainly use some amount of good news in this dreary environment for the airline industry. And to think we almost gave it up for lost, not too long ago.

Handicap

It was a great day for golf at the Alabang golf course and Steady Eddie was playing better than usual. An admiring businessman approached him and respectfully asked him what his handicap was. Chomping on his unlighted cigar, Steady Eddie answered, "the Constitution. Yep, that’s my handicap… the Constitution."

Boo Chanco’s e-mail address is [email protected]