CARS Implementing Rules and Regulations

IMPLEMENTING RULES AND REGULATIONS OF EXECUTIVE ORDER NO. 182, SERIES OF 2015 ENTITLED, “PROVIDING FOR A COMPREHENSIVE AUTOMOTIVE RESURGENCE STRATEGY (CARS) PROGRAM”

Pursuant to Section 16 of Executive Order No. 182, Series of 2015 (EO), the Department of Trade and Industry-Board of Investments, in coordination with the Department of Finance, Department of Budget and Management, concerned government agencies, and stakeholders, the following rules and regulations are hereby promulgated to implement the intent and provisions of the said Executive Order.

Rule I. General Provisions

SECTION 1. Coverage. The Program shall cover the following activities in the manufacture of four wheeled motor vehicles of three (3) enrolled Models:

a. Production of the Model;

b. Manufacture of Body Shell Assembly and Large Plastic Assemblies of the Model;

c. Manufacture of Common Parts and Strategic Parts not currently produced in the country at Original Equipment Manufacturer (OEM) standards of the Model/s; and

d. Shared Testing Services Facilities for vehicles and/or parts.

SECTION 2. Definition of Terms. The following terms shall mean:

a. Board refers to the Board of Investments (BOI) created under Executive Order No. 226, otherwise known as the “Omnibus Investments Code of 1987”, as amended.

b. Body Shell Assembly shall consist of the full set of metal components that goes from the body shop to the paint shop for one vehicle.

c. Common Parts refer to automotive vehicle parts not currently produced in the Philippines at OEM standards, where at least two (2) registered Participating Car Makers (PCMs) agree to source from one parts supplier, such as, but not limited to, automotive glass and automotive seat fabric.

d. Full Model Change refers to the major design change in the external body shell, bumpers, grills, lamps and interior of the vehicle. Full Model Change typically happens every four to six years for passenger cars and light commercial vehicles.

e. High-technology parts refer to parts that are technology or investment-intensive requiring manufacturing capabilities that the Philippines has not yet developed.

f. Large plastic parts refer to all major plastic parts of bumpers, instrument panels, center consoles and door trims.

g. Logistics Efficiency Index (LEI) refers to the measure of cost efficiency of the logistics involved in the supply of motor vehicle parts and components for the enrolled Model.

h. Manufacturing refers to the process of converting raw materials, components, or parts into sub-components or sub-assemblies of car parts subject to net value addition as may be determined by the Board.

i. Model refers to a nameplate that is not currently manufactured in the country. However, a Full Model Change of a nameplate that is currently manufactured in the country shall be considered a Model under this Program. Furthermore, a Full Model Change of a nameplate registered under the Program may be allowed provided it was disclosed at the time of application.

j. Model Life refers to the years upon which there are no major changes in the over-all design and appearance of a Model, which shall not exceed six (6) years.

k. Model Life Budget refers to the fiscal support allocation for the entire Model Life per enrolled model.

l. Nameplate refers to the name used by the car maker in marketing a model, including its variants, in the Philippines.

m. Net Manufacturer’s Price refers to the invoice price from the manufacturer to the dealer.

n. Parts refer to the Body shell assembly and large plastic assemblies of the Model, as well as the Common parts and Strategic parts.

o. Planned total production volume (VolML) refers to the model life production volume up to a maximum of six (6) years as submitted by the applicant.

p. Segment Weighted Average Price (SWAP) refers to the weighted average Net Manufacturer’s Price for the vehicle segment of an enrolled Model less the estimated manufacturer’s net profit of five percent (5%).

q. Shared Testing Services Facilities refer to facilities for common use of any two or all of the enrolled models for testing of vehicles, parts and materials, such as but not limited to testing of materials of parts makers and durability test.

r. Standard Production Support (SPS) refers to the quotient of sixty percent of the Model Life Budget (MLB) over the difference between the registered planned Model Life production volume, which shall not be less than two hundred thousand (200,000) units, and one hundred thousand (100,000). Model Life in this case shall not exceed six (6) years.

s. Strategic Parts refer to automotive vehicle parts specific to an enrolled Model not currently produced in the Philippines at OEM standards such as, but not limited to, struts and shock absorbers, plastic fuel tanks, head lamps, rear combination lamps, steering assembly, and aluminum radiators.

t. Suppliers refer to Parts Makers (PM) of Common Parts and Strategic Parts and Shared Testing Facility Operators (STFO) covered by supply agreements with PCMs.

SECTION 3. Functions of the BOI. The BOI, as the lead implementing and coordinating agency of the Program, shall perform the following:

a. Act upon the recommendation/s of the Inter-Agency Committee on Automotive Industry Development established under Section 5 of the EO;

b. Oversee the implementation of the Program;

c. Submit the annual report on the performance of the Program to the Office of the President (OP);

d. Coordinate automotive industry development efforts of all concerned agencies and instrumentalities of the government; and

e. Perform such other acts as may be necessary or incidental to the exercise of its function and powers and the discharge of its duties under the EO.

SECTION 4. Inter-agency Committee on Automotive Industry Development. The Inter-agency Committee on Automotive Industry Development, created by the EO, shall convene on a quarterly basis, or as often as may be necessary upon the request of the Chairperson. The DTI-BOI representative duly designated by the Board shall act as the Chairperson of the Inter-agency Committee. The members of the inter-agency committee and their alternates shall be duly designated by their respective agencies.

The composition of the Inter-agency Committee shall be as follows:

a. Department of Trade and Industry – Board of Investments as Chairperson;

b. Department of Finance;

c. Department of Transportation and Communication;

d. Department of Science and Technology;

e. National Economic and Development Authority;

f. Technical Education and Skills Development Authority;

g. The Co-Chairman of the Industry Development Council; and

h. The Co-Chairman of the National Competitiveness Council.

An attached unit within BOI referred to under Section 7 hereof shall act as the Secretariat of the Inter-Agency Committee.

SECTION 5. Functions of the Inter-Agency CommitteeThe Inter-agency Committee shall perform the following functions:

a. Evaluate applications for enrolment of Models under the Program;

b. Evaluate applications for registration of PCMs, including its parts makers and/or service providers of Body Shells, Large Plastics Parts, Common Parts and Strategic Parts under the Program;

c. Recommend to the BOI the issuance of the Certificate of Registration for the PCMs including its parts makers and/or service providers and impose terms and conditions;

d. Evaluate eligibility and availment of the fiscal support under the Program;

e. Monitor overall performance and audit compliance of the Program;

f. Prepare annual report on the performance of the Program, to be submitted to the OP, through the BOI;

g. Recommend to the BOI the withdrawal/forfeiture of the fiscal support in the event that the registered Participant fails to comply with the terms and conditions of its registration;

h. Undertake studies and research including review of existing government regulations, as needed, to make policy recommendations in enhancing the effectivity of the CARS and other related Programs, as well as, in improving the overall performance of the automotive industry; and

i. Perform such other functions as may be necessary.

SECTION 6. Powers and Duties of the Inter-agency Committee Chairperson. The Inter-agency Committee Chairperson shall have the following powers and duties:

a. Preside over the meetings of the Inter-agency Committee;

b. Certify recommendations of the Inter-agency Committee to the Board;

c. Represent the Inter-agency Committee in other government meetings; and

d. Perform other duties as may be directed by the Board.

SECTION 7. Program Management Office. An attached unit within BOI is hereby created to serve as the Secretariat of the Inter-agency Committee and provide administrative, technical, and logistical support to the Program’s implementation. The unit shall be led by a Program Director and assisted by a Program Manager and at least six (6) specialists in the area of automotive manufacturing, finance and taxation, monitoring and evaluation, and economics.

Rule II. Enrolment, Registration, and Certificate of Registration

SECTION 1. Criteria for Enrolment of a Model. The criteria for enrolment of a Model shall be based on, but not limited to, the following:

a.  Track record and Model competitiveness, including global and domestic sales;

b. New investments in Body Shell Assembly and Large Plastic Parts Assemblies;

c. Planned volume, as may be determined by the Board, but in no case lower than two hundred thousand (200,000) vehicles over the Model Life up to a maximum of six (6) years;

d. Economic impact of the investment plan for the Model, including impact on the parts manufacturing industry and linkages, investments in Strategic and Common Parts, jobs generation, and overall consumer welfare;

e. Impact on overall competitive environment and long-term industry development; and

f. Compliance with safety, fuel efficiency and emission level standards as may be determined by the Board, which in no case shall be lower than the standards under the Clean Air Act.

In ranking model applications, the above criteria shall be assigned weights to be determined by the Board. In case of tie, the Board shall select the model to be enrolled based on the overall impact to the economy.

SECTION 2. Qualifications for Car Maker. The PCM shall meet the following minimum qualifications:

a. an internationally-recognized carmaker/brand owner and/or its authorized in-country licensed manufacturer acting jointly with an internationally-recognized carmaker/brand owner;

b. with proven global track record, which includes owning internationally recognized brands, and having significant market share in Asia, Europe and/or North America; and

c. with existing multinational operations, which includes research & development, manufacturing, marketing and after sales services in Asia, Europe and/or North America.

SECTION 3. Qualifications for Parts Maker. Parts makers shall meet the following minimum qualifications:

a. endorsed by the PCM to manufacture parts of its enrolled model;

b. OEM automotive parts maker and/or its authorized in-country licensed manufacturer acting jointly with an internationally-recognized carmaker/brand owner;

c. with proven track record; and

d. a member of good standing of the Philippine Parts Makers Association.

SECTION 4. Qualifications for Shared Testing Facility. Proponents for Shared Testing Facilities shall meet the following minimum qualifications:

a. collectively endorsed by the PCMs; and

b. with proven track record.

SECTION 5. Filing of Application. The PCM, including its parts makers and proponents for Shared Testing Facilities, may apply for the enrolment of only one (1) Model during the application period as indicated in a Memorandum Circular, which shall be issued by the Board within thirty (30) days from the publication of this Implementing Rules and Regulations.

In case the three (3) Models are not fully subscribed within the application period or an approved applicant rejects or abandons its project as referred to under Section 9 hereof, the Board may set a new application period for enrolment of additional Model(s), in which case, more than one (1) Model may be granted to a PCM.

The applicant shall comply with the following:

a. Pay a non-refundable application fee of One hundred thousand pesos (Php 100,000.00);

b. Submit two (2) copies of notarized application form duly signed by an authorized officer of the corporation accompanied with the required supporting documents;

c. Submit an annual market and production volume forecast; and

d. Other registration documents as may be required by the Board.

SECTION 6. Publication of Application. Upon filing or official acceptance of the application, notice thereof shall be published once in a newspaper of general circulation, or in any manner that the Board may require, at the applicant’s expense, in a format indicating the name of the applicant, the area of investment, the capacity applied for and the plant site, if any.

SECTION 7. Inter-agency Committee Action. The Inter-agency Committee shall evaluate all officially received applications within a period of thirty (30) days reckoned from the lapse of the application period and submit a recommendation to the Board.

SECTION 8. Board Decision, Notice to Applicant. The Board shall render its decision within thirty (30) working days from receipt of the Inter-agency Committee recommendation. The decision of the Board on every application for registration as well as the terms and conditions of registration shall be communicated in writing to the applicant.

From date of receipt of said notice, the applicant shall have thirty (30) working days within which to submit its acceptance and comply with the pre-registration requirements, if any. The prescriptive period for such acceptance may be extended in meritorious cases.

SECTION 9. Conditions Precedent for Issuance of Certificate of Registration. Before the issuance of the Certificate of Registration, the following requirements shall be submitted and/or complied with:

a. Payment of registration fee of Fifty thousand pesos (Php 50,000.00);

b. Posting of performance bond from the Government Service Insurance System, in the amount determined by the Board;

c. Letter, or if a corporation, resolution of the applicant’s board of directors formally accepting the proposed terms and conditions of registration.

d. Sworn statement authorized by the board of directors/partners or by the individual adopting and/or affirming all representations and commitments made by the applicant to the Board and all information and data heretofore submitted by it to the Board are true and correct; and

e. All pre-registration requirements, if any.

Failure to accept or comply with the requirements within the acceptance period set forth in the preceding section may be construed as a rejection of the proposed registration or abandonment of the project and the Board approval will be withdrawn.

SECTION 10. Issuance of the Certificate of Registration. Upon fulfillment of the foregoing conditions precedent, the Certificate of Registration shall be issued under the seal of the Board of Investments and the signature of its Chairman and/or such other officer or employee of the Board as it may empower and designate for the purpose. The certificate shall be in such form and style as the Board may determine. Eligibility for incentives under the Program attaches only upon issuance of the Certificate of Registration.

SECTION 11. MVDP Membership. The registered PCM shall be deemed a member of the Motor Vehicle Development Program (MVDP) and the same shall be annotated in the Certificate of Registration under the Program.

Rule III. Fiscal Support

SECTION 1. The registered Participants may be entitled up to a maximum of six (6) years of two (2) kinds of fiscal support during the enrolled Model Life,namely: (1) Fixed Investment Support (FIS); and (2) Production Volume Incentives.

SECTION 2. Model Life Budget. The MLB shall not exceed Nine billion pesos (Php 9 Billion).The total fiscal budget support per unit shall be 8% of SWAP but not to exceed Forty-five thousand pesos (Php 45,000.00).

The fiscal support shall be based on SWAP, SPS and LEI during the manufacture of the enrolled Models.

The SWAP shall be determined and fixed by the Board at the time of approval using current NMPs adjusted for inflation averaged over the model life.

SECTION 3. Allocation of MLB. The MLB shall be allocated as follows: (a) forty percent (40%) for Fixed Investment Support and (b) sixty percent (60%) for Production Volume Incentive.

SECTION 4. Fixed Investment Support (FIS). The FIS shall cover capital expenditure (CapEx) for tooling and equipment and training costs for the initial start-up operation. The CapEx to be given the FIS shall be used primarily to support the production of the enrolled models.

The FIS allocation shall be as follows:

a. For manufacturing of Body Shell Assembly and Large Plastics Parts, a minimum of twelve point five percent (12.5%) and a maximum of thirty percent (30%) of the MLB.

b. For Common Parts and Shared Testing Facility, a maximum five of percent (5%) of the MLB.

c. For manufacturing of Strategic Parts, a minimum of five percent (5%) and a maximum of twenty two point five percent (22.5%) of the MLB.

Provided that the FIS entitlements for any project in categories (a), (b), or (c) above shall in no case exceed Forty Percent (40%) of the total CapEx in the investment project.

Priority Strategic Parts and Common Parts are listed in Annex “A” and other parts as may be determined by the Board.

SECTION 5. FIS General Eligibility Requirements. The registered Participant shall be eligible to FIS provided it satisfies the following:

a. New investments in the manufacture of Parts and/or establishment of Shared Testing Facility;

b. Delivery of Parts to the PCM within the prescribed period as stipulated by the BOI;

c. Introduction of the enrolled Model to the market using the Parts manufactured under this Program;

d. Consistently meeting the criteria for enrollment of PCMs; and

e. Attainment of other conditions that the BOI has imposed at the time of registration.

SECTION 6. FIS Eligibility for Body Shell Assembly and Large Plastics Assemblies. Within thirty-six (36) months from the issuance of the Certificate of Registration for the enrolled model, the PCM or its registered parts makers shall manufacture major components of the large plastic parts assemblies and at least fifty percent (50%) by weight of the body shell assembly.

A model registered by a PCM under the MVDP after the effectivity of the EO may also be registered under the Program subject to requirements. In such case(s), the PCM’s qualified investments made prior to registration under the Program for the model may be considered for FIS, provided these are declared in the PCM’s MVDP application. For this purpose, qualified investments shall refer to new investments in equipment, tooling, training and capital expenditures (excluding land) for the manufacture of body shell parts, large plastic parts, common and strategic parts and the setting up of shared testing services facilities.

SECTION 7. FIS Eligibility for Common Parts and Shared Testing Facility (CPSTF). The PMs and STFOs shall deliver the committed Common Parts and/or service to the PCM within thirty-six (36) months from signing of the agreement for CPSTF.

SECTION 8. FIS Eligibility for Strategic Parts. The PM shall deliver the committed Strategic Parts to the PCM within thirty-six (36) months from signing of the agreement.

SECTION 9. Production Volume Incentive. Production Volume Incentive (PVI) shall be granted based on volume production and logistics efficiency computed as follows:

PVI = SPS x Actual Annual Production Volume x LEI

a. LEI is a value between zero and one that represents the logistics efficiency of the participating model’s parts sourcing computed as follows:

LEI = Nf – Na
Nf– Nt

where:

Nf Full CKD pack (m3)  = total m3 of parts for one complete vehicle

Na Imported Parts (m3) = annual volume of imported parts (m3) / total annual production (units)

Nt High-technology parts allowance (m3) = total m3 of parts per unit that are classified as high technology parts. The Nt shall be approved by the Board based on enrolled model data submitted by the PCM and an actual physical audit of one lot of full CKD kit, subject to review mid-model life. In no case shall Nt be more than 23% of Nf.

b. The SPS is computed as follows:

SPS = (60% ­x MLB) / (VolML– 100,000)

Taking the above SPS formula into account, the SPS to be used for the corresponding cumulative production volumes shall be as follows:

Cumulative Production Volume SPS
0 – 100,000 PhP0
100,001 – 200,000 Lower of PhP54,000 or 9.6% x SWAP

In excess of actual production volume of 200,000 units within the Model Life, the SPS shall be Php27,000 or 4.8% x SWAP, whichever is lower, until the PVI allocation is fully exhausted.

SECTION 10. PVI Eligibility. PCMs shall satisfy the following conditions to be eligible for PVI availment:

a. Manufacture at least fifty percent (50%) of the assembly by weight in case of Body Shell Assembly;

b. Manufacture major components of the assemblies in the case of Large Plastic Assemblies;

c. Exceed one hundred thousand (100,000) units in production volume; and

d. Meet other conditions that the Board may impose at the time of registration.

The LEI to be used to compute the first PVI availment shall be based on the weighted average LEI after the first 40,000 units.

Rule IV. Funding Support

SECTION 1. Budgetary Support. The Department of Budget and Management (DBM), in coordination with the BOI, shall propose the inclusion of the annual requirements to fund the fiscal support to be granted to registered and eligible PCM under the Program in the annual General Appropriations Act (GAA).

The total fiscal support for the CARS Program shall not exceed Twenty-Seven Billion Pesos (P27 Billion) with each enrolled Model qualified to a fiscal support in an amount not exceeding Nine Billion Pesos (P9 Billion), to be allocated as follows:

a. Forty Percent (40%) for FIS, provided that in cases of Parts and Shared Testing Facility, the FIS shall not exceed 40% of the capital expenditure for tooling and equipment to manufacture the parts, including training costs for the start-up operation for the use thereof; and

b. Sixty percent (60%) for PVI.

SECTION 2. Funds for the Project Management Office (PMO). The DBM shall provide the necessary funds for the operations of the PMO under the BOI budget starting FY 2016 and until the termination of the Program.

SECTION 3. Tax Payment Certificate. The FIS and PVI fiscal support shall be evidenced by non-transferrable Tax Payment Certificates (TPCs), which shall be used to defray the tax and duty obligations due to the National Government. The tax and duty obligations are excise tax, income tax, import duties, and Value Added Tax (VAT) only, and shall not include any type of withholding taxes.

For this purpose, DOF-DBM-DTI-BOI Joint Administrative Order No. 01-2015 entitled, “Guidelines for the Tax Payment Certificate Mechanism to Implement the Fiscal Support for the Comprehensive Automotive Resurgence Strategy (CARS) Program under Executive Order No. 182, Series of 2015” signed on 16 November 2015, shall form an integral part of this IRR.

SECTION 4. No Double Availment of Incentives. Registered Participants shall not be allowed to register their activity under any other incentive-granting programs of the government, except otherwise provided in this EO.

SECTION 5. Limitation on Availment of Support. The grant of support is conditioned on the compliance of the registered Participant with the terms and conditions of its registration. Upon recommendation of the Inter-agency Committee, the Board may limit the availment of support, as it may deem necessary.

Rule V. Monitoring and Compliance

SECTION 1. Documentary Requirements. The registered Participant shall submit the following reports in the prescribed format and in accordance with the following schedules:

a. Monthly production and Sales Report (itemized by model/variants);

b. Audited Financial Statements and Income Tax Returns submitted on or before May 15 of each year or one (1) month from the last day of filing of Income Tax Returns to the Bureau of Internal Revenue;

c. Liquidation report on issued Certificates of Authority to import submitted one (1) month from end of each quarter; and

d. Other documents or statistical data that may be required by the Board.

SECTION 2. Prohibited Activities. Registered participants are prohibited to do the following:

a. engage in trading of the parts enrolled under the Program and avail of FIS for the traded parts; and

b. other analogous activities, as may be determined by the Board.

SECTION 3. Cancellation, Forfeiture, and Expulsion. Failure to meet the following shall cause the cancellation of the Certificate of Registration and/or forfeiture of support, and/or expulsion from the Program:

a. Investment in the manufacture of parts and/or establishment of Shared Testing Facility within two (2) years from the issuance of the Certificate of Registration; and

b. Delivery of parts to the PCM within thirty-six months from signing of the agreement.

SECTION 4. Violations. A registered Participant found in violation of any of the provisions of the EO, its Implementing Rules and Regulations, and the terms and conditions of registration shall be imposed any or all of the following penalties:

a. Cancellation, suspension or forfeiture of support;

b. Fines of not less than Ten thousand pesos (Php 10,000.00) but not more than One hundred thousand pesos (Php 100,000) for late or non-filing of reports within the prescribed period. For other violations relating to its registration, a reasonable fine shall be imposed by the Board; and

c. Other appropriate penalties.

SECTION 5. Effect of the Board’s Action to Cancel Registration. Within fifteen (15) days from receipt of the Board’s action ordering the cancellation of the registration of the registered enterprise, the latter shall surrender its Certificate of Registration to the PMO.

SECTION 6. Non-Compliance with the Board’s Action. If the registered Participant:

a. refuses to surrender the Certificate of Registration;

b. refuses or fails to pay the penalty and fines, if any, and/or;

c. refuses or fails to abide by the Board’s orders,

The Board shall take appropriate actions against the registered enterprise and/or its stockholders and officers, such as but not limited to, filing of civil cases before the regular courts to compel compliance with the Board’s decision.

SECTION 7. Motion for Reconsideration. A motion for reconsideration of the decision of the Board may be filed within thirty (30) days from the receipt of the notice of Board’s decision; otherwise the decision of the Board shall be final and executory. The registered participant shall only be entitled to one (1) motion for reconsideration.

Rule VI. Final Provisions

SECTION 1. Repealing Clause.  All issuances or parts thereof, which are inconsistent with this Implementing Rules and Regulations, are hereby revoked, amended, or modified accordingly.

SECTION 2. Separability ClauseIf any provision of this Implementing Rules and Regulations is declared invalid or unconstitutional, the other provisions not affected thereby shall remain valid and subsisting.

SECTION 3. Effectivity. This Implementing Rules and Regulations shall take effect fifteen (15) days following its publication in a newspaper of general circulation and filing of three (3) copies hereof with the Office of the National Administrative Register (ONAR) University of the Philippines (UP) Law Center, Diliman, Quezon City pursuant to Presidential Memorandum Circular No. 11 dated 09 October 1992.

 

RECOMMENDING APPROVAL

ADRIAN S. CRISTOBAL JR.

Undersecretary

Industry Development Group

Signed this 16th day of November 2015 in Makati City, Philippines.

GREGORY L. DOMINGO

Secretary

Department of Trade and Industry

Annex “A” – Priority Common and Strategic Parts for FIS allocation

  1. Automotive grade fabric
  2. Engines, engine parts & assembly
  3. Engine mounts
  4. Transmissions/transaxle parts & assembly
  5. Constant velocity joints
  6. Axles
  7. Grill
  8. Lamps
  9. Shock Absorber and struts
  10. Suspension members
  11. Wiper motor mechanism, blade
  12. Steering wheel
  13. Electric power steering system
  14. Window regulators
  15. Combination meter/Instrument cluster
  16. Chassis & sub-frame
  17. Interior finishing
  18. Electric Relays & switches
  19. Alternator and starter motors
  20. Seat mechanism/Seat recliner and sliders
  21. Retractable seat belts
  22. Aluminum radiators, evaporators, condensers, and oil coolers
  23. Plastic fuel tanks
  24. Fuel pumps
  25. Brake system and components
  26. Aircon compressor and parts
  27. Air bag systems
  28. Automotive glass
  29. Door & rear view mirros
  30. Tie rods
  31. Clutch disk
  32. Clutch cover
  33. Locks
  34. Motors