DOF moves to limit auction of imported vehicles in ecozones

Prompted by the intense lobbying of the local automotive industry, the Department of Finance (DOF) is drafting an inter-agency agreement that would limit the sale of imported vehicles in special economic zones.

Finance Secretary Jose Isidro Camacho had already initiated an investigation of the uncontrolled technical smuggling of imported automotive vehicles through these zones in an attempt to determine the scale of the operations and possible ways to control it.

According to Finance Undersecretary Grace Tan, the DOF is reviewing its options since the courts have already issued an injunction against the implementation of an executive order that banned the importation of automotive vehicles through special economic zones.

The injunction has allowed the regular auctions of imported vehicles to continue at the Subic Bay Freeport and Cebu’s Mactan Freeport supposedly for the use of ecozone locators and residents.

However, Camacho said reports reaching his office have shown that the auctioned vehicles were actually being taken out of the zones without paying the necessary duties and excise taxes, effectively overstepping the intention of the law that allowed zone locators and residents to purchase duty-free vehicles for their use within the zones.

Tan said the parallel importation of duty-free and excise tax-free vehicles would have to be regulated so that they could not be abused. "Obviously, zone residents and locators would not need to change cars every six months," she said. "So the first thing we would look at is the frequency of the auctions."

Tan said the DOF had no intention of stopping the auctions but she said there would have to be limits to ensure that the privilege is not abused to the point of stealing market share from local automotive manufacturers.

Tan stressed it is possible to come out with an inter-agency memorandum that would define the parameters for holding the auctions. "If they want to have regular and frequent auctions then they should pay the appropriate taxes and duties," she said.

The DOF official added the tax should be based on the auction price and not the import price to bring the actual price of the vehicles closer to domestic vehicle prices. "It is obvious that the system is being bastardized. If this is how it is conducted then they should no longer be protected by the system," she said.

Tan said the DOF is also willing to open talks with the auctioneers at the ecozones. "We’d like to get their inputs," she said.

The decision to suspend vehicle sales was prompted by complaints of car assemblers that the Subic auctions posed unfair competition. But this move only succeeded at suspending importation in general and did not stop the auctions in the ecozones.

Most of the vehicles were imported by companies operating inside the zone, such as Subic Auctioneers International and Asia International Auctioneers, that have been conducting regular auctions.

The vehicles sold at the auctions include luxury vehicles such as vans, sports utility vehicles, jet skis, big bikes and other luxury cars. Light and heavy equipment such as fork lifts were also sold through the auction.

According to the DOF, the vehicles sold in Subic cost less than locally assembled ones since they were free from taxes and duties when they arrive in the free port. Some were also cheaper because they were slightly-used and not brand-new.