Senate, DOF agree on excise tax formula

Finance Secretary Jose Isidro Camacho announced yesterday that the Senate and the Department of Finance (DOF) have reached an agreement on how to apply the excise tax on automobiles without burdening the industry excessively while still generating acceptable levels of revenues for the government.

Camacho said the proposal will use the foreign exchange rate as a base when adjusting the manufacturers’ price for each vehicle.

"The proposal would allow the automatic adjustments in the index if the peso depreciates by as much as 10 percent over a two-year period. A depreciation of more than 20 percent in less than two years would allow finance authorities to change the index," the finance chief said.

Camacho said the DOF is concerned about raising revenues but it is also considering the tax burden on manufacturers and its impact on sales.

"Obviously, it wont be in our interest to make car manufacturers price themselves out of the market," Camacho said. "If there is no sale, we will have nothing to tax. Having said that, the government can’t afford not to tax them right either. It’s this balance that we have to pin down," he said.

Camacho said the Bureau of Internal Revenue (BIR) is also looking at a three-month transition period for the implementation of the excise tax which would mean that the new basis for the tax could be implemented as early as June.

At present, excise tax on vehicles is based on engine displacement. The more powerful the engine, the higher the taxes.

Finance Undersecretary Cornelio Gison, on the other hand, explained that the committee is discussing three major points in the proposed legislation, namely: the transition period, the indexation and the definition of automobile.

"We’re figuring out a way to reference it on forex rate and the basis is the manufacturer’s wholesale price," Gison explained. "If the forex fluctuates, the manufacturer’s wholesale price will be adjusted and that will determine the bracketing for the excise tax."