The Productivity Commission has recommended in its much awaited report released yesterday that the Australian Government scrap its Luxury Car Tax (LCT) impost on expensive vehicles.
The report noted that the 33% LCT, which from July 1 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”.
Importantly, the report notes that the LCT should not be scrapped if no revenue replacement is found.
“Given the effect on government revenue, if the LCT were not replaced by another revenue source, it is important that its removal be considered as part of a broader program of taxation reform measures,” says the report.
Excluding new taxes, axing the LCT would make expensive vehicles far more affordable – something for which luxury vehicle brands such as Mercedes Benz, and some not considered to be ‘luxury brands’, such as Toyota, have lobbied for some time.
For example, the buyer of a new vehicle that costs about $100000 but consumes more than 7L/100km, such as Toyota’s mid-range LandCruiser VX, would save more than $20,000.ro
The Federal Chamber of Automotive Industries (FCAI) welcomed the news of the proposed scrapping of the LCT. FCAI chief, Tony Weber supports the Commission’s recommendation that the LCT be removed.
“This poorly designed tax distorts vehicle purchase decisions and adversely impacts safety and environmental outcomes,” Weber says.
“We welcome the Government’s in principle support for this recommendation and we look forward to further consideration in the government’s Taxation White Paper.”
When it was introduced, LCT was intended to apply high-priced cars from Europe, but today Toyota customers pay more in LCT than do buyers of Audi, BMW, Mercedes-Benz or Porsche.
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.
Carsguide notes that even a modest discount of $1000 will be reduced to $670 for the buyer. According to Carsguide the motor industry is fuming about the tax grab since it lost a Federal Court hearing that had run since September 2013.
Mercedes-Benz Australia spokesman David McCarthy told Carsguide that to tax a retail incentive on just Luxury Cars makes no sense when other retail incentives in other industries do not attract any adverse taxation imposts.
The government received a peak of $483 million from LCT revenue in the 2010-11 financial year but the amount fell to $435 million in 2011-12 and the forecast for 2013-14 is $450 million.
However, over the next two financial years, the Government has budgeted for a 15% increase in LCT revenue, to $520 million in the 2015-16 financial year.
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