Taxability of Imported 1988 Dodge Grand Caravan

September 20, 1993 BIR RULING NO. 377-93 TAXABILITY OF IMPORTED 1988 DODGE GRAND CARAVAN E.O. 90 00-00 77-93 MEMORANDUM FOR: The Commissioner This refers to the issue on the effect of Executive Order No. 90 on the taxability of an imported 1988 Dodge Grand Caravan be consigned to Ms. Maria Alexandra J. Claparols; and a review on how said Order affect the taxability of various models of utility vehicles. Following the adoption by this Bureau of its definition of automobile on November 14, 1988 as reiterated in BIR Ruling No. 75-89, an Inter-Agency Committee was created in order to thresh out difficulties in categorization, considering that some utility vehicles are large and spacious and yet the seats are less than 9; while some utility vehicles are smaller yet the seats are more than 9. The Inter-Agency Committee members composed of representatives from The Land Transportation Office (LTO), Bureau of Customs (Customs), Bureau of Internal Revenue (BIR) and Bureau of Import Service (BIS) deliberated on the various models of utility vehicles then existing in order to come out with an objective categorization that is fair to the importers or manufacturers concerned. In the deliberation held on September 21, 1992, the Committee decided that the Dodge Caravan, because of its larger configuration, should not be placed in the category of automobile, hence, exempt from ad valorem tax. Attached is a copy of the minutes of that meeting. When the same issue was raised again last year as to whether a Dodge Caravan should be subjected to ad valorem tax or not, for purposes of uniformity and consistency, we ruled in an unnumbered ruling dated October 2, 1992 that it is not subject to ad valorem tax. This is the ruling that Ms. Claparols, through her broker, is presently invoking to avoid payment of ad valorem tax on the Dodge Caravan consigned to her which is pending release from Customs custody. This Office is being called again to decide on the taxability of a Dodge Caravan in view of the fact that the previous criteria (seating capacity) in the categorization of utility vehicles were virtually abandoned in favor of engine displacements pursuant to E.O. 90 as implemented by Finance Department Order No. 34-93; thus, the same vehicle would be subject to ad valorem tax at the compromise rate indicated under said Finance Department Order if the year model is from 1988 to 1992 and the engine displacements is between 2,000 cc to 4,500 cc. Moreover, by prescribing payment of the compromise rates as a pre-condition to the renewal of registration of utility vehicles with year models 1988 to 1992, the said Executive Order also gives retroactive effect to the imposition of ad valorem tax. Thus, if the year model of the utility vehicle is 1988 and said vehicle was released from Customs custody before the effectivity of E.O. 90 as implemented by Finance Department Order No. 34-93 issued on May 19, 1993 and June 10, 1993 respectively, without the prior payment of the ad valorem tax, when the owner thereof applies for the renewal of the registration now, he/she will be liable to pay the deficiency ad valorem tax subject to the defense of prescription when proper. The LTO may hold the re-registration of the vehicle until full payment of the deficiency ad valorem tax or until the compromise rate prescribed under Department Order No. 34-93 implementing said Executive Order is paid. For year model 1993 and subsequent years, the full rate of ad valorem tax under Section 149 of the Tax Code shall be imposed on all imported utility vehicles with the above described engine displacements. It is our opinion however, that for locally-manufactured utility vehicles no change in categorization was intended; thus, for such vehicles the definition as upheld by this Office under BIR Ruling No. 75-89 dated April 14, 1989, in relation to the internal Memorandum dated November 14, 1988 stands, viz: "Based on the foregoing facts, automobile may be safely defined as a 4-wheeled motor vehicle (other than trucks and jeeps as defined under R.A. 4136) which is propelled by gasoline, transport of persons and not used primarily for the carrying of freight or merchandise: Provided, however , that its registered carrying capacity shall not exceed nine passengers." In other words, since Executive Order No. 90 in relation to Finance Department Order No. 34-93 did not expressly embrace locally-assembled motor vehicles, and as tax imposition provisions are always strictly construed, against the government and liberally in favor of the taxpayer, the categorization of some locally-assembled utility vehicles as determined by the previous interpretative rulings issued pursuant to the above-quoted definition/conceptualization of automobile shall be left undisputed. Moreover, since the ad valorem tax under Section 149 of the Tax Code is imposed only on fully assembled vehicles classified as automobiles, no ad valorem tax shall be assessed or collected on completely knocked-down units destined for assembly/manufacturing in the Philippines with the use of Filipino labor and the addition of Philippine-sourced components as determined by the Board of Investments. In such cases, the ad valorem tax shall be collected only upon removal of the fully-assembled units from the factory premises. CLRRD ALICIA P. TOMACRUZ, ARSC ALICIA P. CLEMENO & DCOIC RENE G. BAEZ