We hate to point out the obvious, but prices of cars in the Philippines aren’t cheap. Pick one vehicle model that is also offered in the United States, for instance, and you will find that our pricing is significantly higher. Sure, our cars are more affordable than, say, those in Singapore, but that’s only because the Lion City’s government is deliberately trying to control car sales by imposing a very expensive fee just for the right to own a vehicle (called the Certificate of Entitlement, which is sometimes more prohibitive than the price of the car itself).
But our car prices are the way they are because of the taxes levied upon them. Essentially, there are three kinds of tariff which the government adds to the price tag of an automobile sold in the Philippine market: (1) import duty, if the car is imported (most of them are), (2) excise tax and (3) value-added tax. The excise tax computation was recently revised under the Tax Reform for Acceleration and Inclusion Act, and you may read about it here. The value-added tax (popularly known as VAT), meanwhile, is the 12% sales tax charged on all consumer goods, and that includes motor vehicles.
Now, determining car prices in our territory is a little bit complicated, in part because of the aforementioned taxes that are not always easy to work out, but also because imported cars are slapped varying import duty rates depending on the country they are being sourced from. In very simple terms, an imported car is taxed a customs tariff. If the country that is sending it to our shores has a free-trade agreement with the Philippines, that tariff is significantly reduced.
Right now, we have existing free-trade agreements with ASEAN, Japan, China and Korea. Cars from so-called “most favored nations”—or members of the World Trade Organization—that don’t have a free-trade agreement with the Philippines are taxed a 30% import duty.
Here, then, are the various import duties imposed on cars sourced from other countries:
- Japan – 0% for cars with more than 3.0L of engine displacement; 20% for cars with less than 3.0L of engine displacement
- South Korea – 5%
- China – 0% for cars with less than 1.5L of engine displacement; 5% for cars with more than 3.0L of engine displacement; 30% for cars with 1.5L to 3.0L of engine displacement
- Thailand – 0%
- Malaysia – 0%
- Indonesia – 0%
- India – 30%
- USA – 30%
- Canada – 30%
- Germany – 30%
- UK – 30%
- France – 30%
- Italy – 30%
- Spain – 30%
- Sweden – 30%
It should be noted that for ASEAN countries, the requirement is that the cars should have at least 40% local parts (or 40% components made within the ASEAN region).
China is currently lobbying for a 0% import tax on its cars, just like those coming from Southeast Asian countries. If that is granted, you can expect most of the vehicles being sold in our market to be eventually imported from the People’s Republic (like it or not).
Now you know why Philippine car companies are now mostly getting their vehicles from either Southeast Asia or China. It’s really just a business decision, if you think about it. Still, don’t you wish cars coming from Europe, North America and Japan all had 0% customs duties?