Part 2: Can the Philippine auto industry survive smuggling?

To see the extent of the alleged smuggling in the industry, various auto data sets are compared. Table 1 looks at two sets of vehicle data: new registration of vehicles from the Land Transportation Office (LTO) and domestic sales of the automotive industry reported by the industry association Chamber of Automotive Manufacturers of the Philippines (CAMPI). Both figures refer to cars, utility vehicles, sports vehicles, trucks and buses.  For the LTO data, new registration covers brand new motor vehicles assembled by LTO-accredited assemblers, rebuilt local motor vehicles registered for the first time, rebuilt imported motor vehicles registered for the first time, and brand new imported motor vehicles and imported used motor vehicles registered for the first time in the Philippines.

Table 1: Data Comparison between LTO New Registration of Motor Vehicles and CAMPI Domestic Sales

Year

LTO New Registration

CAMPI Domestic Sales

Difference

% ofNew Registration

1990

132658

57865

74793

56

1991

118822

47949

70873

60

1992

146112

60360

85752

59

1993

165881

83811

82070

49

1994

189532

103471

86061

45

1995

219635

128162

91473

42

1996

242067

162095

79972

33

1997

240662

144435

96227

40

1998

160798

80231

80567

50

1999

152753

74414

78339

51

2000

172053

74000

98053

57

2001

196355

76670

119685

61

2002

193336

85587

107749

56

2003

214245

92336

121909

57

2004

217782

88068

129714

60

2005

167689

97063

70626

42

2006

167898

99541

68357

41

2007

186161

117903

68258

37

2008

177451

124449

53002

30

2009

182589

132444

50145

27

Note: LTO new registration refers to new registration of cars, utility vehicles, sports vehicles, trucks and buses.

 

The table shows a substantial discrepancy between the CAMPI and LTO figures. This could partly be explained by the entry of imported vehicles (both brand new and used) made by non-CAMPI members along with by the backyard assembly of jeepneys. As % of total newly registered vehicles, the gap between LTO and CAMPI went up continuously from 40% in 1997 to 61% in 2001. The ratio fell to 56% in 2002 and 57% in 2003, but went up again to 60% in 2004. Note, however, that the gap dropped from 42% in 2005 to 27% in 2009.

Table 2 compares imports of used vehicles data from the Land Transportation Office (LTO) and the National Statistics Office (NSO). NSO imports data are based on the import entries of used vehicles while the LTO data refer to newly registered used imported passenger cars, SUVs/UVs, trucks, and buses. Table 2 shows a substantial discrepancy between the NSO and LTO figures on used CBU imports. To take inventories into account, the figures from 1998 to 2003 are cumulated. The NSO cumulative total of 130,740 represented only about one-fifth of the LTO new registration data for imported used cars whose cumulative total amounted to 561,039. On the average, the difference between the two data sets is about 71,700 vehicles between 1998 and 2003. This large data gap between the two data sets could indicate some under-reporting in the case of NSO but more importantly, this figure could represent a rough estimate of smuggled vehicles. Note that the under-reporting at NSO could be attributed to the absence of import entries submitted to it.

 

Table 2: Data Comparison between LTO Registration of Imported Used Vehicle Imports and NSO Vehicle Import Statistics

  1998 1999 2000 2001 2002 2003 Total Average
LTO newly registered

imported used vehicles

81,034 78,369 88,057 97,024 113,327 103,228 561,039 93,507
NSO imports of used vehicles 4,480 5,112 46,384 22,071 20,967 31,726 130,740 21,790
Gap between LTO and NSO 76,554 73,257 41,673 74,953 92,360 71,502 430,299 71,717
Gap between  LTO and CAMPI (based on  Table 1) 80,567 78,339 98,053 119,685 107,749 121,909 606,302 101,050

 

Table 3 contains calculations of tax leakages due to smuggling. The calculated gaps found in Table 1 are adjusted to remove backyard assembly of jeepneys and similar activities outside the formal sector. Assuming this is about 30% of the gap and under conservative price scenarios, the calculated tax leakages were in the range of P15 billion in 2005 to P21 billion in 2007 and 2009.

 

Table 3: Estimates of Revenue Losses in the Auto Industry

 

Data Gaps (number of vehicles)

Revenue Losses

(in billion pesos)

Year

LTO

CAMPI

GAP

Adjusted Gap

Duties, Excise, VAT

2005

167,689

97,063

70,626

49,438

14.971

2006

167,898

99,541

68,357

47,850

16.803

2007

186,161

117,903

68,258

47,781

20.867

2008

177,451

124,449

53,002

37,101

16.203

2009

182,589

132,444

50,145

35,102

21.213

 

Currently, the industry is under considerable pressure given the presence of cheap second-hand vehicles and the tariff elimination under the Association of Southeast Asian Nations (ASEAN) scheme. The shrinking domestically assembled CBU sales has been preventing foreign automakers from seriously considering the Philippines for a more important role in their global and regional production networks. Nevertheless, given the country’s US$20 billion annual OFW remittances, expanding middle class and brighter prospects for sustained and high level of economic growth; the auto industry’s potentials remain strong. Industry sources indicate that the third wave of high motorization growth in the region is expected to take place between 2015 to 2022. To prepare for this, the government and the private sector are crafting an auto roadmap to help revive the industry and increase its chances of survival in a globalized world. However, this will all go to naught if smuggling and used car importation issues are not resolved swiftly. They not only erode government revenues but more seriously, they are threatening to completely erode a manufacturing base that is a large potential source of employment and other positive spill-over effects to the economy.

 

Aldaba is Vice-President and Senior Research Fellow, Philippine Institute for Development Studies.

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