Read on for what you need to know about the new auto tax reform in the Philippines, and how much you need to earn on average if you’re thinking about owning a decent car starting 2018.
If you’ve been following the news, you must have had a whiff of what’s coming for the auto industry in the coming months. The Department of Finance (DoF), in its intention to pursue a more progressive tax measure, which also aims to curb Manila’s worsening traffic condition, has proposed a new auto excise tax.
To put it simply, the proposed tax reform was designed in such that it will reduce car ownership because of the significant add-on costs for buyers in taxes, and indirectly encourage the use of public transportation. Further, not only does the higher tax cover automobiles, but also petroleum products. It only means that anything related to car ownership in the Philippines will be getting more expensive soon, as the implementation will be staggered on a two-year period: 2018 to 2019.
So, if you’re thinking about buying yourself a new car, you probably need to rethink your ways and means to earn adequate money to prepare for the bills. Find out what you’re getting into as we’ve compiled the numbers that matter for different types of cars, as they’re categorized into segments falling under the new auto excise structure.
Under the new auto excise tax structure, vehicles priced up to Php 600,000 will be taxed 5% (increased from 2%). For vehicles priced Php 600,000 to 1 million, 20%; for those 1.1 to 2.1 million in value, 40%, and for vehicles priced 2.1 million and about, 60% auto excise tax is assigned.
But since its announcement, both private and public sector proponents have been protesting this new tax structure. Several social media releases have even detailed the substantially higher standard retail prices (SRPs of known car models. The DoF thus amended their proposal on January 2017, incorporated into HB 4774 also known as the Tax Reform for Acceleration and Inclusion Bill Act. It was then that the DoF amended its proposal on January 17, 2017, which was then incorporated into the HB 4774, also known as the Tax Reform for Acceleration and Inclusion Bill Act.
Here’s an outline of the tax structure. Credit to Security Bank of the Philippines for the figures below.
Net Manufacturer’s / Importer’s Selling Price Current Excise Tax Structure HB 4774 Auto Excise Tax Proposal
Up to 600,000
Over 600,000 to 1.1 Million
12,000 20% in excess of 600,000
24,000 40% in excess of 600,000
Over 1.1 Million to 2.1 Million
112,000 40% in excess of 1.1 Million
224,000 100% in excess of 1.1 Million
Over 2.1 Million
512,000 60% in excess of 2.1 Million
1,224,000 200% in excess of 2.1 Million
What it means for potential car buyers
Larger vehicles and high-end cars selling at 1.1 million to 2.1 million will be taxed at a fixed excise of 224,000 (increased from 112,000) plus 100% (from 40%) of the amount in excess of 1.1 million, while those selling at over 2.1 million will be taxed a fixed excise of 1,224,000 (increased from 512,000) plus 200% of the amount in excess of 2.1 million.
The best thing to do for interested car buyers is to just do the purchase now rather than later. But if it can’t be avoided to carry out the purchase by next year, then here’s what you’re in for. Check out the SRPs of some popular car models, as outlined by Security Bank:
Car Price Before Tax SRP (Current Excise Tax) SRP (DOF Excise Tax Proposal ) Increase in SRP
Mitusbishi Mirage G4
Note from Security Bank: Please be advised that the figures presented in this table may not be exact and is for educational purposes only.
The low-down: how much do you need to make now?
If you’re doing some quick math now in your head, at the very least, you should be earning about Php 50,000 to afford a mid-range priced car and still be able to afford basic necessities. For example, the net SRP of a Honda Mobilio with the new auto excise tax is Php 950,000. This means a monthly expense of about Php 35,000 if you want to pay it off in two years, for example, under an auto loan scheme.
There is some good news though: the proposed auto excise tax reform will not affect used or second-hand cars. Availing some current models of second-hand cars is still covered by some auto-financing institutions and banks, so you can still get a pretty good deal of paying only about say, Php 10,000 to Php 15,000 monthly for a decent second-hand car that’s in the 2010 model and onwards.
So, opt to amortize your car payments through a financing institution that offers friendly payment terms. This way you dodge the sky-high car prices come the auto excise tax reform implementation, and make good, practical use of your money.