Why Are Cars So Expensive in the Philippines? Excise Tax, Import Duty and VAT Explained

Many people shopping for a car in the Philippines are surprised by the price tag. The main reason is the way cars are taxed. This guide explains the three taxes that push prices up, and the other costs of owning a car.

Three taxes on top of the price

• Import duty, for imported cars

• Excise tax

• Value-added tax (VAT) at 12%

1. Excise tax rises steeply with price

Under the TRAIN law, which took effect in 2018, the excise tax on cars uses four rates based on the manufacturer's or importer's selling price.

• Up to 600,000 PHP: 4%

• Over 600,000 to 1 million PHP: 10%

• Over 1 million to 4 million PHP: 20%

• Over 4 million PHP: 50%

The key point is the jump to 50% above 4 million PHP. That is why prices of luxury cars climb so sharply. Hybrids pay half the standard rate, and electric vehicles are exempt.

2. Import duty depends on where the car is made

Imported cars pay duty based on trade agreements with the country of origin. According to local reports, the main rates are:

• Made in ASEAN (Thailand, Indonesia and others): 0%, subject to regional content rules

• Made in Japan: 0% for engines over 3.0L, 20% for 3.0L and below

• Made in South Korea: 5%

• Countries without a trade deal (Europe, the US and others): 30%

This is one reason many Japanese-brand cars sold in the Philippines are built in Thailand or Indonesia.

3. VAT at 12%

Finally, cars carry the same 12% VAT as other goods. With duty, excise and VAT stacked together, the selling price ends up well above the cost of making the car.

Costs after you buy

• Car insurance

• Annual registration renewal

• Parking at your condo or office

• Interest if you take a car loan

• A driver's salary, if you hire one

Buy it or use it?

Owning a car means paying the taxes up front and running costs every year after. Unless you drive every day, booking a car and driver only when you need one is often cheaper overall. For luxury models, where excise tax hits hardest, matching your choice to how often you actually travel makes a big difference.

About 1% DRIVE

With 1% DRIVE, you can ride in a Toyota Alphard, a car that costs more than 4 million PHP to buy, with a professional driver from 7,000 PHP for 3 hours. Insurance, parking and the driver are all taken care of. Book it for airport transfers, business trips or celebrations, only for the hours you need.