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Top Gear Philippines

Bureau of Internal Revenue ad

Yesterday, the Bureau of Internal Revenue put out a full-page ad--which we estimate to have cost the agency P150,000--in the Philippine Daily Inquirer to share with the public the 2012 income taxes of the various car companies that do business in the country. And if we may point out, they used our car sales report posted on this website on January 15, 2013.

Here is the table showing the figures the car companies have been taxed with for their NIBT (net income before tax) in 2012:

2012 income tax of car companies in the Philippines

Now, we don't know what exactly the BIR is telling us with these numbers, because these can be pretty misleading to a lot of people--especially those who don't know how to analyze financial statements. To make things really controversial, the tax-collecting agency wrapped up the ad with this question: "Has your car company been doing its fair share of good governance?" That, of course, is really just a paraphrase of their main question: "Do car companies pay the right taxes?"

What makes this ad somewhat irresponsible is the fact that it imputes culpability to several car brands without the benefit of an explanation. The ad simply included the income tax figures. The BIR didn't even bother to say how those figures came up. To a casual reader, the automatic implication of the ad is that the bottom-dwellers on the list must be tax cheats, just because they paid the least amount of taxes. For instance, one might assume both Nissan Motor Philippines and Volvo (Scandinavian Motors) did not pay the right taxes, just because their income tax figures are only P1,698,159 and P3,234,836, respectively--as opposed to the much larger amounts paid by other car brands.

But the amount of income tax paid doesn't necessarily reveal whether a company is honest or not when it comes to tax payment. If the income tax paid is small, that could really just mean the net income is correspondingly modest, too. These figures are very intricate, and we won't claim to know how to expertly dissect them. Before you arrive at the net income, you need to determine the revenue (sales), the gains, the expenses and the losses. You need these numbers to see the big picture.

Unfortunately, we don't have access to all the other numbers. Thankfully, though, we can perform some extrapolation based on the figures published by the BIR. Because the income tax is 30% of the NIBT, we can know what each car company made last year before taxes. Here is the table:

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2012 net income before tax of car companies in the Philippines

Again, these figures tell a lot more stories than what their digits let on. For instance, you're probably wondering how come Ford Philippines only made P86,177,622 last year when they sold 10,902 cars. Well, you need to remember that it was last year when the company shut down its manufacturing operations in Laguna, thus letting go of a lot of employees. These retrenched employees were paid severance packages, and this surely took a toll on the company's bottom line.

The top three earners on the list--Toyota, Mitsubishi and Hyundai--are pretty much predictable since they sold the most number of units. What impressed us are Isuzu and Subaru, which made quite a lot for their respective sales volumes.

Now, here is the interesting part. Because we now know what each company made last year before taxes, we can also determine how much they raked in for every car sold. Check out this table:

2012 average income per unit of car companies in the Philippines

Yes, Mini (British United Automobiles) is tops when it comes to income on a per-unit basis. A lot of factors could have contributed to this. Perhaps they didn't spend much on marketing. Perhaps they got a very good deal on their units. Perhaps they didn't have much overhead with just a single showroom to maintain. Whatever the factors are, it just says the distributor's current business model is efficient for now, but that will inevitably change once it decides to expand.

We can understand why Nissan (NMPI) earned just P3,917 per unit last year. The brand, after all, is struggling with diminishing sales. Add to this the fact that its dealership network is still relatively big, and you could really end up with a dismal balance sheet. What we find a little puzzling is Honda Cars Philippines' per-unit profit, which is kind of paltry for a brand with its sales volume. Our best guess is that the company was still in the process of restructuring last year. Keep in mind that Honda offered many of its longtime employees early-retirement packages in the last couple of years--particularly after the flooding in Thailand when its supply issues went from bad to horrible.

Interestingly, Honda's P6,617 per-unit profit is virtually the same as what one of its dealers told us they made per unit. In June this year, we posted a story about Honda Cars Quezon City Group general manager and COO Gene de Jesus claiming that his group's net profit was about P6,000 per car. (Do note that dealer profit is different from distributor profit; we just find it amusing that the two were identical for Honda last year.)

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But like we said, these numbers are all very complicated. You can't say a car company should earn a lot just because they sell a lot. Profit is also largely dependent on the efficiency of the business operations. You can sell cars like hotcakes but still struggle in the profit column if you don't manage your expenses. That's the job of top management, particularly the president and the finance director.

By the way, by "profit per unit sold," we do not mean the literal monetary gain per car. Because automakers do not earn strictly from car sales; they also make a lot of money from after-sales service, for example. We just want to show the average profit vis-à-vis the number of units that a car company sells. This is all just a casual exercise in basic number-crunching.

In closing, we'd like to reiterate that the BIR should have provided more details to go with yesterday's newspaper ad. It's just wrong to publish these numbers without equipping the public with the ability to understand them.

Do car companies pay the right taxes? Frankly, we don't know, even with these figures (assuming the numbers that come out of the carmakers are 100% accurate to begin with). We do hope that they do, of course. We do business with them when we buy their cars, and we mingle with them when we cover their events. We'd be disgusted if we found out we were hanging out with tax evaders.

Then again, there is also the matter of not wanting to pay the right taxes because government is teeming with crooks that pocket them anyway. But that's another story.

Vernon B. Sarne
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car sales BIR Bureau of Internal Revenue income tax Philippine car industry taxes
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