THE Bureau of Internal Revenue (BIR) has imposed stricter rules to prevent schemes used to avoid excise taxes in the sale or transfer of automobiles.
Revenue Regulation 027-2025 altered the rules on how ad valorem tax-or tax imposed on an item based on its assessed value-is computed when a tax-exempt entity sells or transfers an automobile to a non-tax-exempt buyer.
The BIR said the new rule aims to ‘ensure equitable tax computation and alignment with market-based valuation.’
According to the BIR, the tax will be based on the actual selling price agreed upon by the parties or the depreciated value of the automobile at the time of sale, whichever is higher.
The annual depreciation rate is set at 16 percent, but limits the total allowable depreciation to no more than 80 percent of the vehicle’s original cost or value.
For vehicles acquired by a tax-exempt person or entity before-but sold after-the effectivity of the new rules, the computation of ad valorem tax will be governed by the current regulation, according to the BIR.
When it is determined that a tax-exempt automobile was acquired primarily to avoid the payment of excise tax, the ad valorem tax will be assessed based on the vehicle’s original purchase price or importation value at the time of acquisition, with no allowance for depreciation, the BIR stressed.
If the BIR finds that the sale or transfer was mainly intended to avoid the payment of excise taxes, then the ad valorem tax will be assessed based on the original purchase price or value of importation at the time of acquisition, with no allowance for depreciation.
The regulation also outlined several indicators that may suggest a scheme to circumvent excise tax obligations, unless proven by evidence.
These include the sale or transfer of a vehicle within a short period from acquisition without valid justification, repeated purchases by the tax-exempt person or entity and disposing of them shortly after, or transfers to officers, employees, relatives or closely affiliated entity without arm’s length transaction terms.
Other circumstances that may raise red flags include records showing the automobile was hardly used for official operations, prior agreements indicating intent to sell or transfer existed before or shortly after acquisition, or the entity’s nature or operations do not justify the acquisition of a luxury or high-value vehicle.
The same applies when the automobile was never registered under the tax-exempt entity or used predominantly by non-affiliated individuals.