Philippine automakers have opposed a proposal to increase the excise tax on luxury vehicles, stating that the measure could further reduce sales amid a slowdown in the automotive market.

The proposal would raise the tax rate to 75% for vehicles priced above PHP 8 million, with the government projecting additional revenue of PHP 1.65 billion (US$ 25.93 million).

Highlights

- The Department of Finance (DoF) has proposed increasing the excise tax on vehicles priced above PHP 8 million from 50% to 75%, with approval targeted for next year and an estimated additional revenue of PHP 1.65 billion.
- The Chamber of Automotive Manufacturers of the Philippines Inc. (CAMPI) has warned that the increase could reduce premium vehicle sales and affect revenue targets. Overall automotive sales declined by 6% to 7% year-on-year as of October.
- SMC Asia Car Distributors projects a 52% decline in demand and a 20% increase in selling prices if the proposal is implemented. The company has also reported delayed BMW orders and possible cancellations of Ferrari orders.

Proposed tax changes and industry objections

As reported by media sources, the DoF has proposed introducing a new excise tax bracket for automobiles with a net manufacturer's or importer's price exceeding PHP 8 million under its Promoting Growth, Revenue, and Equity towards Socio-economic Sustainability package. The department is targeting approval of the proposal next year. These vehicles currently attract a 50% excise tax, the same rate applicable to vehicles priced above PHP 4 million.

During a House of Representatives hearing on Wednesday, DoF Undersecretary Karlo Fermin S. Adriano said the proposal is intended to make the tax system more progressive by requiring those with a greater capacity to pay to contribute more. Existing excise tax exemptions for electric vehicles and certain commercial and public transport vehicles would remain unchanged, while hybrid vehicles would continue to be subject to half the applicable excise tax rate.

The DoF's revised additional revenue projection of PHP 1.65 billion is lower than its earlier estimate of PHP 3.91 billion, as the previous forecast included proposed changes to the taxation of electric and hybrid vehicles. Adriano said the revised estimate accounts for the expected reduction in demand resulting from higher prices.

CAMPI President Jose Ma. "Jing" Atienza said the proposed increase could affect four or five brands in the premium segment, which has yet to return to the sales levels recorded before the TRAIN law took effect in 2018. He said the existing 50% tax rate was already high and that further price increases could reduce sales volumes, potentially affecting the government's revenue targets.

Market slowdown and impact on distributors

Industry representatives attributed the ongoing decline in vehicle sales to social and political issues, high fuel prices and stricter bank loan approval requirements. Atienza said overall automotive sales as of October had declined by approximately 6% to 7% compared with the corresponding period a year earlier. He also noted changes in sales volumes across CAMPI member-brand segments, particularly a shift towards electric vehicles.

San Miguel subsidiary SMC Asia Car Distributors said increasing taxes on a relatively small vehicle segment that already faces high taxation may not achieve the government's policy objectives. Chief Financial Officer Jevie Bryan Uy, citing CAMPI data, said sales of premium-brand vehicles priced at PHP 2.1 million and above declined following the implementation of the TRAIN law in 2018, compared to 2017.

Uy said sales recovered between 2023 and 2025, partly due to tax incentives for electric and hybrid vehicles, but remained below the 2017 level. He also noted that lower vehicle sales would affect collections from value-added tax, customs duties, corporate income tax, vehicle registration-related charges and other industry-linked revenues.

Uy projected that demand could decline by 52% in the coming years if the proposed tax rate is implemented. San Miguel's automotive group, which imports and distributes BMW and Ferrari vehicles in the Philippines, has already delayed orders for two BMW models scheduled for next year. The company is also facing possible cancellations of 23 Ferrari units as customers assess the impact of the proposed price increases.

According to Uy, the proposed tax change could increase vehicle selling prices by approximately 20%, potentially making grey-market imports more competitive. He added that inflation, borrowing costs, currency weakness and slower GDP growth were already affecting consumer demand, while the additional tax could threaten the financial viability of affected distributors.

Earlier, we reported on proposed Philippine bond reforms aimed at broadening market liquidity, alongside existing investment constraints.