The Bureau of Internal Revenue (BIR) has issued Revenue Regulations (RR) 27-2025, significantly revising the tax treatment on the subsequent sale, transfer or exchange of a tax-exempt automobile by a tax-exempt person/entity to a non-exempt person/entity. This new regulation replaces provisions under Section 8 of RR 25-2003.
Under the amended rule, when the tax-exempt person acquires an automobile and subsequently sells it to the non-exempt buyer, the tax base for the ad valorem tax remains the same from the previous regulation, whichever is higher between the actual selling price and the depreciated value. However, the depreciation rate increased to 16 percent per year, with a maximum of 80 percent of the original cost or value.
Previously, the old rule allowed only 10 percent per year, capped at 50 percent of the original cost or value. The regulation also introduces stricter anti-tax avoidance measures. Where the acquisition was primarily intended to avoid excise tax, the ad valorem tax shall be based on the original purchase price or the value of importation without any allowance for depreciation.
RR 27-2025 further identifies eight indicators of possible abuse, including resale within one year, repeated resale of tax-exempt vehicles, transfers to insiders, lack of official use before disposal, intent to sell prior to acquisition, acquisition to circumvent excise tax and failure to register the automobile under the taxpayer’s name.
The regulation takes effect 15 days after publication in the Official Gazette or on the BIR website, whichever comes first.
Please be guided accordingly.
Source:
P&A Grant Thornton
Certified Public Accountants