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Malacañang to raise tax on imported used vehicles
Felipe F. Salvosa II, BusinessWorld (17 Aug 2004)

PHILIPPINES: The Arroyo administration has finally found a way to curb the rampant importation of used cars, which has been a bane to the local automotive industry.

Malacañang is crafting an executive order that will in effect raise the cost of acquiring used vehicles imported from abroad, tax- and duty-free, through freeport zones such as Subic Bay and then sold through public auctions.

A well-placed source said the order would extract used vehicles from the current tariff heading for imported vehicles -- which does not distinguish between brand new and used vehicles.

Used vehicles will then have a new tariff heading. Once they are brought out of the freeport, a surcharge in the form of a specific duty will be imposed, the source said.

This is on top of the existing ad valorem tax charged on used vehicles upon entry into the Philippine customs area, the source added.

The ad valorem scheme has been blamed for the extremely low prices of used vehicles since the tax rate is based on the importer's acquisition cost, which is often undervalued.

A specific duty, which is to be patterned after that of Australia, will be more effective since it will be based on transaction value, or the purchase price agreed upon by the end-user and the auctioneer of the used vehicle, the source said.

"The specific duty is still being determined," the source said, adding that public hearings would be conducted by the Tariff Commission.

Malacanang will justify the move by highlighting the negative impact of used cars on the environment, the source said.

Government officials earlier tried to ban used cars, citing the dangers of converting right-hand drive vehicles to left-hand drive, but were stopped by an injunction issued by an Olongapo court at the request of vehicle importers.

The source noted that the same strategy was successfully used on sugar.

The President signed Executive Order No. 295 last March, reclassifying sugar-based pre-mixes to plug tariff loopholes that enabled imported pre-mixes to come into the country duty-free.

The Tariff and Customs Code of 1978 or Presidential Decree No. 1464 as amended, empowers the President to "increase, reduce and remove existing rates of import duty, as well as to modify the form of duty and the tariff nomenclature."

The Chamber of Automotive Manufacturers of the Philippines, Inc. or CAMPI earlier stated that used car imports have resulted in "substantial market erosion" and has hampered the growth of the local automotive sector.

Around 200,000 new vehicles were registered with the Land Transportation Office last year, while automotive industry sales totaled only a little over 92,000 units. CAMPI noted that neighboring countries in the Association of Southeast Asian Nations have returned to their sales levels prior to the 1997 Asian financial crisis, while the Philippines was "still finding difficulties in achieving a sustainable growth."

Currently, Thailand and Malaysia are hitting 600,000 units and 350,000 units, respectively. Philippine automotive sales, meanwhile, grew by 8% to 92,336 units last year, but this still is a far cry from the 162,095 units sold by the industry at its peak in 1996.

Copyright © 2004 BusinessWorld Online, Inc. ALL RIGHTS RESERVED.

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