February 9, 2023

Filipino Guardian

Sentinels of Filipino Free Press

Motor vehicle tax revision required – IMF

MOTORISTS drive through an intersection in Cubao, Quezon City, August 2. – PHILIPPINE STAR/ MIGUEL DE GUZMAN

The Philippines should consider revising passenger car taxation to account for its impact on the environment, the International Monetary Fund (IMF) said.

In a report, the IMF said the Philippines should conduct a thorough review of the tax treatment of passenger cars.

“Away from a luxury tax (like the long-expired VAT on luxury goods) towards an environmental tax (one-off registration tax or excise tax, possibly coupled with a recurring road tax, similar to the current motorist tax) that ideally includes both (carbon dioxide) emissions as well as road congestion should be preferred,” the IMF said.

The Philippines should conduct a revenue impact assessment of this policy change before implementation, it said.

“Starting in 2003, the Philippines moved away from taxing passenger cars based on engine size (an indicator of negative externalities related to negative environmental impact and road wear) to a tax on the value of cars,” according to the IMF.

However, the IMF said this type of tax jeopardizes the main goal of a “Pigou tax” — reducing the consumption of goods with negative externalities and simply enforcing a consumption tax that is usually based on objective and easily measurable criteria.

It found that low-value cars, mostly old models, can be more harmful to the environment, infrastructure and road safety than new vehicles.

Despite “commendable” reforms under Republic Act No. 10963, or the Acceleration and Inclusion Tax Reform Act (TRAIN), the IMF said “changes in passenger car taxation should be reviewed.”

Under TRAIN, road taxes were adjusted based on net manufacturing or importer price. The tax rate is 4% of the manufacturing or import price for automobiles valued up to P600,000; 10% for cars over P600,000 but under P1 million; 20% for automobiles over 1 million pesos but under 4 million pesos; and 50% for cars over P4 million.

Pickup trucks and pure electric vehicles are currently exempt, while hybrid cars are taxed at 50% of the equivalent car.

In August, the House Ways and Means Committee approved the fourth package of the sweeping tax reform program, which includes removing the excise duty exemption for pickup trucks.

The removal of the consumption tax exemption for pickup trucks is expected to generate additional revenue worth 52.6 billion pesos from 2022 to 2026, according to the Treasury Department.

However, automakers have opposed the measure, saying it would hurt sales in the auto industry and also local businesses using pickup trucks.

The IMF said there are many tax measures proposed by the previous government that the current government should consider implementing.

“The measures include measures related to the broadening of the Value Added Tax (VAT) base, the upward adjustment of traditional consumption taxes and potential plans to introduce carbon taxation,” it said.

“Further refinement of excise taxes, including on energy products, elimination of tax exemptions for motorcycles, and introduction of a recurring vehicle tax are viable options for revenue mobilization and improved efficiency.”

The Treasury Department under the Duterte administration had proposed a fiscal consolidation and resource mobilization plan it said was needed to address the government’s 3.2 trillion pesos of debt accumulated during the pandemic.

Proposed measures include postponing the TRAIN income tax reduction, excise duty on single-use plastics and luxury goods, imposing a VAT on digital service providers and a carbon tax.

She also proposed a reform of the road toll for motor vehicles, which would levy a single and uniform rate based on the maximum permissible weight of all motor vehicles. — LMJC Jocson