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Government considers abolition of Luxury Car Tax

Lux for less: Abolishing the LCT could reduce the price of a Mercedes-Benz S500 by $51,851.

The government is considering dumping LCT after Productivity Commission Report

27 Aug 2014

THE Australian government said it will consider the removal of the Luxury Car Tax (LCT) and the five percent tariff on imported vehicles following the Productivity Commission (PC) Inquiry Report into Australia’s Automotive Manufacturing Industry.

A recommendation made by the report stated that the federal government should “in its forthcoming Taxation White Paper, consider: the removal of the five per cent tariff on imported passenger and light commercial vehicles after Ford, Holden and Toyota have ceased manufacturing motor vehicles in Australia the removal of the luxury car tax and more efficient sources of government revenue with which to replace these measures.”

The government’s official response stated it would “support in principle” the recommendation.

“The possible removal of these measures and any sources of government revenue with which to replace these measures will be considered in the context of the Australian Government’s Taxation White Paper,” the government noted.

Currently a five percent tariff is placed on imported vehicles, however some countries are exempt, due to free trade agreement with Australia.

A 33 per cent LCT applies to vehicles costing more than $60,316 with a fuel consumption of more than seven litres per 100km, and if a car is more fuel-efficient than 7.0L/100km the threshold is raised to $75,375.

Mercedes-Benz Australia senior manager of public relations, product and corporate communications David McCarthy said he welcomes the government’s response.

“Now the government supports that in principle which is great – it’s an advance,” Mr McCarthy said.

“But let me deal with the five percent tariff first. The reality is the tariff doesn’t apply to all the utes that come out of Thailand, it doesn’t apply to vans that come out of Japan and Korea and it doesn’t apply to passenger cars that come from those markets and also from the United States.

“Predominantly, the tariff is now being levied on European vehicles, so we would support that.

“With regards to the Luxury Car Tax, we would absolutely support the abolition of it and also in terms of working with the government to find other sources of revenue to replace that because it’s $500 million a year currently.”

BMW Australia general manager of corporate communications Lenore Fletcher agrees and said that the response was promising, but would want to know how the government would recoup the money.

“It’s certainly been widely accepted for a long time that the motor vehicle industry in general has had issue with the LCT, so definitely there is no doubt that the removal of it would be welcomed and would be a real boon to consumers as well,” Ms Fletcher said.

“The only place were I would be conservative is to see what revenue streams the government replaces it with.”

Audi Australia too is pleased with the government’s response and general manager of corporate communications Anna Burgdorf said the removal of the LCT and five per cent tariff will create a level playing field and allow consumers access to better safety technology.

“There’s no question that we would welcome the abolition or at the very least the reduction of the luxury car tax,” Ms Burgdorf said.

“There’s a real need, we believe, to encourage people to buy fuel efficient vehicles and cars which have the best safety technology and it’s not secret that it’s the luxury cars which have championed that in this country.

“If you compare the cost of vehicles in Australia with other major markets – it isn’t a level playing field. Any taxes on imports that can be reduced we fully support.”

A White Paper on the reform of Australia’s tax system was proposed in the 2014-2015 Budget Overview delivered in May this year, but it when it will be conducted is uncertain.

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