EXPLAINER

Philippines: 'Zero tariff' to make hybrid electric vehicles cheaper, buy now?

Major policy decision seen accelerating adoption of eco-friendly transport

Last updated: May 23, 2024 | 08:18

7 MIN READ

Hybrid electric vehicles (HEVs) are now included in the "zero tariff" regime in the Philippines under a new Executive Order. There are at least 16 EV models available in the country and another 27 hybrid models. Toyota, Honda, Chery, GWM and Mazda are the most popular Hybrid Cars brands.

Hybrid electric vehicles (HEVs) are now included in the "zero tariff" regime in the Philippines under a new presidential order. There are at least 16 EV models available in the country and another 27 hybrid models.

Manila: The Philippines has done what was once unthinkable. In a major policy move, President Ferdinand Marcos Jr. recently issued an order that will make cars less polluting, and more affordable.

How?

The chief executive has expanded the zero-tariff policy on battery electric vehicles (BEVs) to include more types of EVs, including hybrids (HEVs) and plug-in hybrids (PHEVs), plus related components.

Game-changer

The National Economic and Development Authority (NEDA) Board, chaired by the president, has expanded the scope of Executive Order (EO) No. 12 on May 15.

It's a game-changer.

Manila has done a masterstroke that in effect boosts affordability, and encourages wider adoption of eco-friendly vehicles.

The original EO 12 already slashed import duties on EVs from 5 per cent to 30 per cent to zero. But EVs remain out of reach by most consumers, and standard charging stations are nowhere near the ideal number.

For decades, convoluted rules and a lack of clarity on duties and tariffs levied on vehicle imports has bred frustration, inefficiency and corruption.

EVs coming from the Association of Southeast Asian Nations are already at zero tariff as the country has free trade agreement with its Asean partners. Until the new order came, however, the most favoured nation (MFN) tariff for EVs remained high at 30 per cent.

An EV charging station at a mall parking lot in the Philippines. Scrapping tariffs could potentially propel the country to a pole position in renewable transport in the region.

Scrapping tariffs could potentially propel the country to a pole position in renewable transport in the region.

430,000

Number of motor vehicles sold in the Philippines in 2023

Zero tariff

Here's why the zero-tariff decision on EVs, HEVs, and PHEVs is significant.

One: It gives the transport industry tax clarity with respect to vehicle imports, at least for the next four years.

Two: It would cut prices of hybrid and plug-in hybrid vehicles, making them for affordable and driving demand.

Three: Among car companies, importers and local assemblers, the move could further develop the supply chain that caters to the categories covered by the order.

It's unclear at this point how much the price cuts would be (we'll update this article as soon as the information become available).

What is the EO 12?

Originally signed in January 2023, EO 12 slashed import tariffs on pure BEVs and their components to zero until 2028.

What does the expanded EO 12 cover?

The recent expansion of zero tariff, approved on May 15, 2024, now includes:

“Executive Order No. 12 is designed to stimulate the electric vehicle (EV) market in the country, support the transition to emerging technologies, reduce our transport system’s reliance on fossil fuels, and reduce greenhouse gas emissions attributed to road transport," said Arsenio Balisacan, who also serves as the vice chairperson of the NEDA Board.

"By encouraging consumers to adopt EVs, we are promoting a cleaner, more resilient, and more environmentally friendly transportation alternative,” he added.

How will it affect the EV market?

This crucial policy decision is seen expanding the fuel efficient car market.

Currently, there are at least 16 EV models available in the Philippines and another 27 hybrid models. Toyota, Honda, Chery, GWM and Mazda are the most popular Hybrid car brands in the country.

In 2023, about 430,000 motor vehicles were sold in the Philippines.

Sales of hybrid vehicles were already on the rise among those who want fuel savings but face with “range anxiety” with EVs, given the small number of charging stations in the country.

Out of the 5,518 eco-friendly vehicles sold in the Philippines from January to April 2024, 3,869 were HEVs made by Toyota and Lexus, data from the Chamber of Automotive Manufacturers of the Philippines show.

Hybrid EV prices

These are the hybrids available with latest indicative prices ($1 = 58.15 Philippine peso as of May 21) in the Philippines (prior to expanded EO 12):

By extending the modified tariff rates to hybrids, President Marcos Jr shunned calls to reject such an expansion. For the Department of Trade and Industry (DTI), including hybrid cars in EO 12 would go against the policy’s original purpose of promoting and expanding the use of pure EVs in the country.

There hasn't been a major roll-out of a EV charging infrastructure outside Manila and a few cities outside the capital. And despite Electric Vehicle Industry Development Act (EVIDA) being already 2 years old, data from the Department of Science and Technology (DOST) show that most electric chargers are concentrated in NCR and Region IV, with 181 and 117 chargers, respectively (as of end-2013). Other regions have fewer than 20 chargers, with some lacking any. Others rely solely on small-scale battery-swapping to extend electric vehicle charges. The government, meanwhile, is working to increase the number of fast chargers nationwide. However, DOST indicates that it will take several years of research and development before this can be achieved.

However, the EV charging infrastructure in the Philippines remains underdeveloped, though the EV law (Republic Act 11967) grants fiscal and non-fiscal incentives for EV manufacturing and importation of charging stations. The law mandates the provision of EV chargers at parking slots in government buildings, malls and public places. It, however, does not require petrol stations to also install EV chargers.

Whether brand-new or used, purchased or donated, the imported vehicle is subject to 40% Customs duty, 10% VAT and Ad Valorem Tax from 15% to 100% depending on its piston displacement. Its "book value" serves as the tax base and not the purchase price nor the acquisition cost, according to an explainer by the Philippine Department of Foreign Affairs. The huge Customs duty, coupled with wide range of Ad Valorem Tax computation, from 15% to 100%, gives much leeway to state employees tasked to collect them, and uncertainty.

Why was the zero-tariff policy adopted?

Extending the zero-tariff coverage is a forward-looking policy that supports the transition to emerging technologies, reduce dependence on fossil fuels, and lower greenhouse gas emissions from road transport.

The policy aligns with the goals of the Electric Vehicle Industry Development Act (EVIDA), effective April 2022, which provides a comprehensive framework for EV operations in the Philippines, including the "manufacture, assembly, importation, construction, installation, maintenance, trade and utilisation, research and development and regulation" of EVs in the country.

The decision has been welcomed by various stakeholders, despite some initial opposition, as the Department of Trade and Industry (DTI) had previously argued that prioritising pure EVs would create a more virtuous cycle that would justify the build-up of charging stations.

However, the broader inclusion now aligns with the country’s commitment to a green transition and reducing air pollution.

What’s the reaction of the local auto industry?

The Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) supports the expanded order. This inclusive approach to vehicle electrification recognises the contribution of all EV technologies — HEV, PHEV, and BEV — to the broader policy objectives of energy security and greenhouse gas emission reduction.

The expanded EO 12 not only aims to stimulate the EV market but also supports broader economic and environmental goals. With this move, the Marcos government has done a masterstroke that in effect boosts affordability, and encourages wider adoption of eco-friendly vehicles. By reducing tariffs on a wide range of EVs and hybrids, the government is promoting cleaner, more resilient, and environmentally friendly transportation.

The expanded order, at least in the short- to medium-term, would bolsster a new ecosystem, generate demand, and shape a more prosperous, energy-efficient and environmentally sustainable future.