New BIR Rules Limit Depreciation, Curb Abuse of Tax-Exempt Car Privileges

The Bureau of Internal Revenue (BIR) has issued Revenue Regulations No. 027-2025, revising the tax treatment of previously tax-exempt automobiles once they are sold or transferred. The amendments update Section 8 of RR No. 25-2003 to align excise tax valuation with market-based pricing and to curb tax-avoidance practices involving transfers of tax-exempt vehicles.

Under the new rules, ad valorem tax must now be computed using the actual selling price between the tax-exempt entity and the non-exempt buyer. Depreciation is strictly limited to 20% per year, with a maximum allowable depreciation of 30% of the vehicle’s original cost, regardless of age or condition.

The regulations also identify specific indicators of tax circumvention, such as transfers made within a short period such as within one year of acquisition, non–arm’s-length pricing, repeated acquisition and quick disposal of vehicles, inadequate documentation, lack of registration under the tax-exempt entity, and the acquisition of luxury vehicles inconsistent with the entity’s purpose. These factors may lead the BIR to conclude that the transaction was not bona fide and was structured to avoid excise tax.Tax-exempt entities must review their acquisition and disposal policies to ensure compliance, as the new standards impose tighter documentation requirements and stricter tax valuation rules. The regulations take effect 15 days after publication, and all inconsistent issuances are repealed.