Europe’s car makers will call on trade minister Steven Ciobo when he visits the continent this week to scrap the 5% import tariff and the luxury car tax (LCT).
The move could be seen as an attempt to get vehicles into their Australian dealerships for less.
The minister expects to face calls for the LCT to be abolished during his first visit to Europe to discuss a free-trade deal between Australia and the EU.
The European Union announced in October that it would begin to work on a potential free trade deal with Australia while a scoping study is underway.
Ciobo told the Australian Financial Review his visit was a chance to “highlight Australia’s desire to move forward with an ambitious, high-quality free-trade agreement” and “also to hear from the Europeans any points of view they have in the lead-up the scoping study being completed”.
A Productivity Commission report in 2014 found a 5% tax on imported vehicles from countries that do not have preferential or free trade agreements in place should be abolished as the tax was introduced primarily as a means of protecting the local car industry.
“There is no industry protection rationale for maintaining the tariff on imported passenger and light commercial vehicles after Ford, Holden and Toyota have ceased motor vehicle manufacturing in Australia,” the PC report says.
“There is a strong in-principle argument for the removal of the tariff once Ford, Holden and Toyota cease manufacturing in Australia.”
Additionally, the European automotive industry argues that the LCT is a form of tariff that is discriminatory because it is not imposed on other luxury items such as jewellery or private jets.
Ciobo told the Australian Financial Review “the LCT is not on my agenda” but acknowledged that it may be raised in meetings with EU officials.
The Federal Chamber of Automotive Industries (FCAI) has lobbied the government to scrap the LCT. Chief executive, Tony Weber supported the productivity commission’s report last year that the LCT be removed.
“Taxes and other government charges make up around 20% of the price of new cars in Australia. Fixing those tax arrangements, including the poorly-designed LCT, is a better and more targeted way of addressing car affordability than a change that will only ultimately hurt consumers,” said Weber last year.
The 2014 PC report outlined that the 33% LCT, which applies to the component of a vehicle’s price up to $61,884 (or $75,375 if they consume less than 7.0L/100km), accounted for around $400 million in revenue for the government but was arbitrary in its effect.
When it was introduced, LCT was intended to apply to high-priced cars from Europe, but today Toyota customers pay more in LCT than buyers of Audi, BMW, Mercedes-Benz or Porsche do.
Under the new regime, the LCT not only applies to accessories and the delivery fee, but also is now applied to any factory bonus or incentive discount to the dealer as well.
The Australian Automotive Dealers Association warned in March last year: “A number of inherent flaws in the LCT’s policy structure have created complicated and unfair operating conditions for new car dealers in Australia.”
“For example, the tax’s discriminatory nature has been a particular pain point for the industry. The LCT does not apply to other luxury goods such as yachts, jewellery, watches, private aircraft and artwork.”
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