Understanding taxes and fees when buying a car in the Philippines

When buying a car, it is always better that you understand the taxes and fees that come with it. It provides you proper information on which fees and taxes should and shouldn’t be paid. Philkotse.com has prepared a list of the taxes and fees you will encounter when you purchase a car and its purposes.

1. Destination charge

It is the cost of vehicle delivery from the factory to the dealership. It is often shown on the sticker on the vehicle’s window. This charge is set by the carmaker and usually, the charge is the same with all the models of a particular brand. When buying a car, you have to pay for the destination charge because it is a straight pass-along fee.

Just be very cautious because some dealers like to sneak in some additional fee for the delivery, which is itemized on the 2^nd window sticker near the official window sticker. If there are additional “delivery”, “dealer prep”, “pre-delivery”, or “destination” charges on the final bill, refuse to pay them.

When buying a car, you have to pay for the destination charge because it is a straight pass-along fee

2. Processing or documentation fee

The processing fee is also called a documentation fee. Every dealership puts a charge for the processing. This fee cover’s the dealership’s cost of paperwork. Commonly the expense range is from 5,000 to 20,000 but it varies from one dealership to another.

Salespeople will often tell you that it is like the most fees which are not negotiable. If you don't make any counter offer, then it will be non-negotiable. Their willingness to lower it greatly depends on the deal you got on that car. They will fight for every peso if you cut their profit to the bones. But, if they easily give in, then it could be a sign that you overpaid for the car.

Although it is impossible to eliminate this fee, you can still this as part of the negotiation. You can try negotiating to the dealer to lower the car’s price with the same amount, letting the fee stay on the buying agreement.

Every dealership puts a charge for the processing. This fee cover’s the dealership’s cost of paperwork

3. Advertising fee

Almost all manufacturers charge the dealership for the brand’s national advertising. The charge is included in the dealer-invoice price. The regional dealer association can also impose assessments covering radio, the local newspaper, and TV commercials or advertisements.

It has become common for dealers to pass along some part of that expense to every new vehicle lease or sale.

The advertising fee should be agreed to and disclosed before finding it on the closing paperwork. There are dealers that list this fee on the separate sticker which is posted in the car's window. If ever, you are hit with the advertising fee from God knows where challenge it and ask the dealership to remove it.

The advertising fee should be agreed to and disclosed before finding it on the closing paperwork

4. Extended warranty

The extended warranty is another dealership fee that you might need to pay. It is extra coverage for the car's major repairs needed after the warranty of the manufacturer expires. It depends on you.

However, if you decide to buy one, we advised you to get the coverage that is backed by an established third-party company or by the car's manufacturer. Remember that you do not have to purchase coverage on the spot. You can take your time in comparing different contracts.

The extended warranty is extra coverage for the car's major repairs needed after the warranty of the manufacturer expires

5. Dealer preparation fee

Most car manufacturers pay the dealers in removing the coverings and coatings which protects the car during the whole shipment and to also clean the car for the buyers.

If ever you encounter this fee on the closing paperwork, demand for it to be removed. There’s no justification for the car buyers to pay the dealers again for these services.

There is no need to pay for extra cost for the preparation such as removing the coverings and coatings

6. Sales tax

Most often, car buyers are surprised by the sales tax on a new car. Say, a 9% sales tax on a 1.5-million-peso car is 135,000 pesos. Different cities and countries usually add their own tax topping the state tax. So, most probably, the amount you will pay varies within a country or state.

Sales Tax Rate normally differs in different cities and countries

>>> Must read: 4 Questions About Excise Tax on Cars in the Philippines 2018 Finally Answered!

7. Vehicle Identification Number Etching

Insurance companies and the police encourage car buyers and car owners have their VIN (vehicle identification number) etched into the window of the car as an anti-theft measure. Having the VIN etched as an anti-theft measure is a very nice idea.

It is also cost-effective. However, if you have it done at your dealership, you’ll have to pay for an expensive VIN etching. If that’s the case, you can negotiate for a lower price or you can have the fee to be removed.

You can check for alternatives. Usually, local service clubs offer VIN etching on a minimal amount. You can also buy DIY kits which are available for 1,000+ pesos.

Having the VIN etched as an anti-theft measure is a very nice idea. It is also cost-effective

8. Fabric protection

There are dealers that offer car buyers a fabric protection plan which is usually around P20,000.00. They will treat the car’s interior, making it resistant to stain. However, modern fabrics used in most cars don’t the need that treatment.

But, if you have a family that is particularly messy, then you should consider purchasing a can of Scotchgard for about P500.00 and spray it on the interior by yourself.

You can do fabric protection by yourself

>>> You might like to check out: 6 Ways to Maintain Your Car Interior’s Cleanliness

9. Paint protection

It's not new that car buyers want their car to have that polished car look, and the dealer also knows that. They also know that you want your car stay that way, which is why they will be very glad to charge you P25,000.00 or more for your car’s paint protection.

But take note that car paint and finishes have already improved over the last decades which is why most cars don’t need that extra protection. Reconsider this paint protection because all you will be getting is a glorified wax job from the dealers.

Car paints have already improved over the last decades so most cars don’t need that extra protection

It is very important that you always check everything when you go through the contract. You have to determine which fees and taxes you really need to pay, as well as the fees and charges that might still be negotiable. You should also know that there might be fees included in your closing paperwork that can and should be dismissed entirely.

Being armed with the knowledge of what you should and shouldn’t be paying when buying a car is a great advantage. It also enables you to save a great sum of money that you can spend on better things other than unnecessary expenses charged by the dealership.

>>> Click to get more helpful tips and advice for your car buying