By Eric Tipan
Over the past few months, prospective car buyers were sent to fits of speculation over whether or not they can afford a brand-new vehicle.It made for good watercooler convo and a great test of rusting math skills, but armchair statisticians aren’t what you need for sound advice on the matter.
Republic Act (RA) 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law was officially signed by President Duterte on December 19, 2017 and we’re here to tell you, it’s not as bad as you think.
On January 1, the TRAIN Law effectively superseded various sections of the National Internal Revenue Code of 1997 or RA 8424 including Revenue Regulation 25-2003 of RA 9224, the 2003 amendment of the excise tax schedule for automobiles.
The old excise tax rate followed a four-tier system with a base price set for Tiers 2 to 4. Below is the outdated fourteen-year old tax schedule used until TRAIN came along this year: vehicles below P600,000:two percent; vehicles P600,000 to P1.1 million: 20-percent in excess of P600,000 plusa base tax of P12,000; vehicles P1.1 million to P2.1 million: 40-percent in excess of P1.1 million plus a base tax of P112,000; vehicles P2.1 million and over: 60-percent in excess of P2.1 million plus a base tax of P512,000.
Under the first package of the TRAIN Act is a similar and simpler four-tiered system sans the base tax, but comes with a higher tax rate that will be directly applied to the Net Manufacturer’s/Assembler’s/Importer’s Selling Price (NMAISP).
Below is the updated tax schedule for automobiles:Tier 1:four percent for vehicles priced up to P600,000; Tier 2: 10-percent for vehicles priced between P600,000 and P1 million; Tier 3: 20-percent for vehicles priced between P1 million and P4 million; Tier 4: 50-percent for any vehicle above P4 million.
Bear in mind that this rate is not applicable to electric vehicles (EVs), pick-up trucks, and automobiles used exclusively within designated freeport zones around the country.Hybrid vehicles such as the Prius will only be taxed 50-percent of the applicable rate.Simple, precise and clear-cut.
In layman’s terms
In case you don’t have access to the internet and have not seen the various pricing simulations post-TRAIN, I’ll lay down four examples from each of the tiers to give you a ballpark figure of how your next car will be priced.
Assuming a fixed NMAISP (as this data from manufacturers/assemblers/importers is highly confidential in nature) for each tier, we will implement the new tax schedule including the 12-percenteVAT but excluding the profit margin of the seller.
Excise tax rate of 4% P24,000
NMAISP + 4% tax rate P624,000
12% eVAT P74,880
Total sum w/out profit margin P698,000
A vehicle with an NMAISP of P600,000 under the old tax schedule would only come out to P685,440 without profit margin. That’s a price increase of P12,560.
NMAISP P1 million
Excise tax rate of 10% P100,000
NMAISP + 10% tax rate P1,100,000
12% eVAT P132,000
Total sum w/out profit margin P1,232,000
Under the old tax schedule, a unit with an NMAISP of P1 million would only come out to P1,223,040 sans profit margin. The price increase is P8,960.
NMAISP P2 million
Excise tax rate of 20% P400,000
NMAISP + 20% tax rate P2,400,000
12% eVAT P288,000
Total sum w/out profit margin P2,688,000
With the base tax of P112,000 under the old taxation scheme, a vehicle with an NMAISP of P2 million will be priced at P2,768,640. Note the price drop is P80,640.
NMAISP P5 million
Excise tax rate of 50% P2,500,000
NMAISP + 50% tax rate P7,500,000
12% eVAT P900,000
Total sum w/out profit margin P8,400,000
At this tier and based on the previous law, vehicles bearing an NMAISP of P5 million will be priced at P8,122,240, which includes the P512,000 base tax, excise tax and eVAT but, again, without profit margin. The price goes up by P277,760.
How this affects you
Do bear in mind that the computations above are based on theoretical NMAISPs and the totals are without profits of margin. These are for reference only to derive a rough estimate of future vehicle prices.
Note that not all tiers come with marked increase in prices. Because the base tax has been removed in favor of a fixed tax rate per tier and eVAT. Tier 3, for example, has actually lower prices under the TRAIN Act implementation.
The Department of Finance (DOF) says that 99-percent of families will have higher disposable income because of reduced personal income tax (PIT) under the TRAIN Law.
As per the DOF’s website, a person earning a monthly salary of P21,000 will be exempted from paying PIT. They opine that the extra money on the table can be used to offset the adjustments on the price of new vehicles.
The year of the Earth Dog, is predicted to bring increased cash flow (among many others) and with TRAIN’s new stipulations, it does seem to apply not just to individuals but even to the Duterte administration.
Until we receive official prices from auto dealerships, let’s keep an open mind. 2018 has cometh and for now it seems like Mr. Taxman comes with good tidings — a new code to giveth higher take-home pay and increased revenue for the government.
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