Filipino President Has Millions Worth of Cars Crushed

If you are a sensitive soul, you may want to look away now as this article may cause you considerable distress.

In March this year, Philippine President Duterte made a grand demonstration by being filmed overseeing the destruction of 68 high-end and classic cars and motorbikes being crushed ruthlessly. Lamborghinis, Porsches, Mustangs, Harley Davidson bikes and other gorgeous vehicles treated like mere rusty carcasses only good enough for a junk yard. Worse, it isn’t the first time he has done it, he had ordered the slaughter of dozens of other beauties worth almost US$1 million a month before that and again just last month.

Unfortunately, the Philippines is in the grip of some serious problems. Drugs have been a long-standing issue, tackled with more or less success by previous governments. Elected in 2016, President Duterte has taken a tough stance on it and shocked the international community and human rights advocates for voicing support for extrajudicial killing of drug users and other criminals.

Now he has turned his attention to another problem, illegally-imported luxury vehicles. While previous Philippines administrations impounded the cars and sold them at auction, Duterte chose this drastic course of action because he believes that this problem is detrimental to the image of the Philippines as a place of business and he wants to show the country as a financially viable investment - and one that isn’t funded by crime. In addition, offering the cars for auction means that smugglers can buy them again at low cost, thus defeating the effort put into tackling this crime.

The question, though, is why there is such a buoyant market for illegally imported cars in the Philippines? The reason is very simple: Prohibitive taxes on imported cars.

Taxes on imported vehicles have always been high but President Duterte increased fees thanks to a new law that came into force on January 1, 2018, the aim being to raise revenues to fund infrastructure projects and other programs planned by the current government. As you can imagine, this triggered a stampede at the end of 2017 when everybody tried to get their cars imported before the tax hike.

First of all, there is the Customs duty, which is 30% for vehicles able to carry up to nine people, and 20% for those above. Then, you have an Ad Valorem Tax, based on the piston displacement of a car, and which can be anything between 15% and 100% of the car’s book value - and not the purchase cost. VAT is charged at 12%.

The costs associated with importing vehicles also include, not one, but two types of Warehouse Processing Charges (WPC): storage charges and warehouse handling charges. There is also an excise tax between 4% and 50% of the value of the car depending on how many people it can carry.

As with all trade tariffs, another aim is to make importing your car so expensive that it will make no sense to do so and that people will choose to buy one locally, thus supporting the country’s economy.

In addition to these breathtaking costs, the conditions to meet to be allowed to import a personal used car at all are draconian as only former or returning Filipino citizens are authorised to. Only one car per family can be imported and it has to have been registered for a minimum of six months in the name of the person who wants to import it before being shipped to the Philippines. Only vehicles under 3 tons are considered and they must be left-hand drive.

The car trade doesn’t have to contend with these restrictions as they deal with new cars and ‘all’ they have to worry about is taxes and duties. But they have found a creative, legal way to go around this: they don’t import cars but the components to make them and they assemble them in the Philippines. Not only is it cheaper to transport car parts than cars themselves, they are also circumventing the exorbitant costs of importing cars.

However, for any vehicle that isn’t brand new or not produced by the manufacturer who chose this solution, this isn’t a possibility, hence a thriving smuggling market.

In another interesting development, the Filipino Senate President Aquilino Pimentel III,’ a member of Duterte’s party, has recently suggested that the Bureau of Customs (BOC) consider auctioning seized luxury cars to "serious" foreign buyers and collectors rather than destroying them, in recognition of the quality and the intellectual work that goes into vehicles of that pedigree as well as the pure waste of materials crushing them means; the profit would then be used to help victims of natural disaster in the Philippines.

It is undeniable that destroying such fine cars is a great loss and that there have been mixed feelings about the President’s tough handling of the problem, but this scheme may be more difficult to implement than it sounds as the Filipino government would have to be able to ensure that such foreign buyers are not a front for smugglers.

Duterte has had to deal with criticism over his general policy of high tariffs as detractors argue that it has actually contributed to cement lawlessness and black market and to reinforce the fragility of the economy but it is a trend that has been observed in other countries sure as Malaysia, Nepal, other Asian countries and even the US. While the real effectiveness of such policies is debatable, they are nevertheless good PR tools for heads of state wanting to prove their commitment to fighting crime and looking after the economic interests of their country.

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The Philippines President Has Millions Worth of Cars Crushed

The Philippines President Has Millions Worth of Cars Crushed

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