With the finalization of the bicameral version of the TRAIN or Tax Reform for Acceleration and Inclusion Bill, it’s now heading to Malacañang for the President’s approval.
Once signed into law, this sets into motion a comprehensive change to the country’s taxation structure, including one that governs new vehicles.
As a refresher, the current excise tax for new vehicles shifted from an engine displacement-based system to a value-based system that uses the Net Manufacturer’s Price (landed cost + importation duties and taxes) or Cost of Goods Sold (COGS) as basis.
Below P 600,000 – 2 percent
P 600,000 to P 1,100,000 – P 12,000 + 20 percent in excess of P 600,000
P 1,100,000 to 2,100,000 – P 112,000 + 40 percent in excess of P 1,100,000
P 2,100,000 and over – P 512,000 + 60 percent in excess of P 2,100,000
This system has been in use since the late 1990s.
If approved by the President, the comprehensive new tax law will retain the four-tier structure, but with different delineations:
P 600,000 and below – 4 percent
Above P 600,000 to P 1,000,000 – 10 percent
Above P 1,000,000 to P 4,000,000 – 20 percent
Above P 4,000,000 – 50 percent
This new version exempts EVs (for environmental incentives) and pick-up trucks (to spur the agricultural sector) while reducing the excise tax on Hybrid vehicles by half versus non-hybrid vehicles.
Assuming all factors aside from excise tax remains constant, it’s now possible to take a look at how TRAIN affects a sample of 42 vehicles (roughly 10 percent of the available models in the Philippines) from various price ranges.
Using the current (as of December 14, 2017) Suggest Retail Price as a basis, it’s important to strip the following to derive the Net Manufacturer’s Price:
Current Excise Tax
7 percent wholesale profit (based on Net Manufacturer’s Price)*
7 percent dealer profit (based on Net Manufacturer’s Price)*
12 percent VAT (based on Net Manufacturer’s Price + Excise Tax + Margin).
Based on these assumptions, pick-up trucks definitely benefit the most with a Suggested Retail Price (SRP) that could go down by as much as 20 percent for leisure trucks such as RAM 1500 Laramie Crew Cab. Other more mainstream pick-ups, such as the Ford Ranger Wildtrak and Toyota Hilux might see a reduction of about 11 percent. It won’t be insane to think that upcoming products such as the Ranger Raptor will take advantage of this, and be priced well in the P 2.5 to 3 million range.
In the hybrid category, luxury hybrids in the P 4 million-range such as the Honda Legend and Lexus NX300h will see the biggest drop in price: 16 percent and 15 percent respectively. Sadly, something more mainstream such as the Toyota Prius c will just see a meager 2 percent drop. Digging deeper and looking at two Lexus NX models: the non-hybrid NX200t and hybrid NX300h shows that even by halving the excise tax, it won’t make the hybrid cheaper. Yes, the SRP goes down by an approximately P 618,271 compared to today, but it’s still around P 550,000 more expensive than the non-hybrid version under the TRAIN.
Removing all pick-up trucks, EVs, and hybrids, the approved bicameral version sees vehicles priced in the P 1.4 million to P 2 million range affected the most with cars such as the Honda Civic RS Turbo and Subaru XV 2.0i-S getting slapped with a 10 percent and 9 percent increase respectively.
What’s even more surprising is how a small difference in the current SRP will have a potentially huge effect when the new vehicle excise tax comes into play. That P 25,000 difference the Volkswagen Golf GTS Business Edition+ and the Honda Civic RS Turbo results to a P 128,259 difference post-TRAIN in favor of the German.
Finally, although the senate version seemed to have favored luxury vehicles over mainstream ones, the bicameral version has managed to balance this out.
Plotted out in a graph, the bicameral version of TRAIN goes through multiple “waves” with peaks and troughs.
As previously mentioned, the biggest peak happens in vehicles priced between P 1.4 million to 2 million. Those below P 1.4 million will potentially see just a single-digit increase (1 to 2 percent) while those priced from P 2.5 million such as the Ford Explorer 2.3 Limited (P 2,609,000) will actually see a drop in price with the trench bottom being at the likes of the Toyota Land Cruiser and Audi Q5 which will drop by a substantial 10 percent and 11 percent respectively.
However, as the Net Manufacturer’s Price hits around P 4 million (these are the vehicles with an SRP that’s typically in the P 7.3 million range), the wave starts going up again. Cars such as the Nissan GT-R will be swept up the most—with a price increase amounting to 6 percent.
As the suggest retail price goes up though, the wave start to flatten once more. The LC 500, which commands a P 1,458,000 premium over the GT-R, will just see an approximate P 340,210 jump in SRP compared to the Nissan sportscar, which sees a P 431,335. Meanwhile, seven-digit cars such as the Audi R8 V10 Plus will actually be more affordable under the new excise tax structure. This exotic sportscar will be P 190,540 cheaper. Without a doubt, vehicles in the Bentley, Ferrari, Lamborghini, and Rolls-Royce range will see even bigger savings under the new tax structure when compared to the current one.
Based on this data, it’s clear that the bicameral version of the new vehicle excise tax will affect some car buyers more than others by the time of its implementation. If you’re thinking of buying a car in the P 1.4 million to P 2 million range such as those from Subaru, Mazda, Peugeot, and Volkswagen, now would be a great time to get that vehicle before TRAIN takes effect. These are the brands that will most likely have to adjust their SRPs to cover for the increase in tax. Same goes if you’re in the market for an SUV such as the Honda CR-V, Toyota Fortuner, Mitsubishi Montero Sport. Meanwhile, if you’re on the fence whether you should get a mid-tier Audi, BMW, Mercedes-Benz, or Volvo, it might be a good idea not to rush that purchase, especially if your finances are going to be more fleshed out by next year.
