THE Department of Finance (DOF) has expressed belief that congressional approval of the proposed restructuring of the excise tax on automobiles will help alleviate the traffic congestion in Metro Manila and other highly urban centers as this will discourage purchase of new vehicles.

Finance Secretary Carlos Dominguez III said that under the DOF timetable, the implementation of the automobile tax increase would begin in 2018, which will give the Duterte administration enough time to start fixing the problems plaguing the country’s rail transit system and put in place additional alternative modes of city travel that would encourage people to use mass transport rather than ride cars.

“If this thing is going to pass, it will probably be effective in 2018. So we have a year to fix it. So there, that’s the reason. By the way, we are not imposing this merely to make life hard for people. We are imposing this to finance [our] infrastructure needs,” said Dominguez.

Dominguez also said a highly progressive tax on automobiles will discourage the purchase of new cars, which, in turn, will help stop traffic congestion from getting worse, and reduce air pollution and the carbon footprint.

“What’s the point of buying a new car and not moving in the streets? That point of the matter is we want to direct the people to go to public transport, and we are making big investments in public transport, particularly the bus rapid transit system, and we’re fixing up the trains, whose maintenance has been neglected over the years,” Dominguez said.

“So we are going to make public transport more available. We have to discourage new cars because just look at the traffic, it’s not moving,” he added.

Dominguez said the worsening traffic congestion is not confined only to Metro Manila, but is also happening in other major urban hubs such as the cities of Davao and Cebu.

The DOF has submitted before the Congress in September the first package under its proposed comprehensive tax reform program.

The first package covers the reduction in personal income tax rates, along with offsetting measures that aim to expand the value-added tax base, adjust the excise tax on petroleum products and index these to inflation, and restructure the excise tax on automobiles, except for buses, trucks, cargo vans, jeepneys, jeep substitutes, single cab chassis, and special-purpose vehicles.

According to Finance Undersecretary Karl Kendrick Chua, the reforms in the automobile excise tax being pushed by the DOF involves shifting to an ad valorem system that simplifies the computation of the tax.

“Under the proposal, the tax brackets for the manufacturing price or import price can be indexed to inflation once every two years if the US dollar exchange rate is more than 10 percent. If the movement in the exchange rate is more than 20 percent, then the full movement of the exchange rate will be the basis for the indexation,” Chua said.

Under the DOF proposal, the tax for entry-level cars priced P600,000 and below would go up from 2 percent to 5 percent, while luxury vehicles priced over P2.1 million would be taxed 60 percent of the manufacture/import price, up from the current tax of P512,000 plus 60 percent in excess of 2.1 million.

Chua noted that the car industry has already enjoyed a 10-year grace period of no tax increases.

“Even with a doubling of gasoline and diesel price between 2009 and 2011 to close to P45 and P60 per liter, automobile sales continued to grow strongly,” he noted.

He said the DOF proposal would affect the top 10 percent of households in terms of income the most, and increasingly the top 1 percent, as this is a highly progressive tax.

For instance, a young professional who buys a Mitsubishi Mirage HB-8 model will pay P15,000 more for the car under the proposed car excise tax increase, representing a 3.36 percent hike from the current price.

But a CEO who purchases a Range Rover Sport SVR will pay P838,000 more, or an increase of 24.28 percent from the current price. (SDR/Sunnex)