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Europe trade deal ‘could end luxury car tax’

Taxing problem: Buyers of luxury cars such as Mercedes-Benz’s new S-Class stand to save thousands of dollars if Australia does a free-trade deal with the European Union within a few years.

Mercedes-Benz says an EU-Australia free-trade deal could end ‘unfair’ car tax

Mercedes-Benz logo18 Aug 2014

A POSSIBLE free-trade agreement between Australia and the European Union might spell the end for Australia’s luxury car tax (LCT), according to Mercedes-Benz Australia Pacific (MBAP).

The luxury car importer – which has long decried the tax as unfair and illogical – says the EU is opposed to such taxes under World Trade Organisation rules, believing them to be a form of unfair tariff.

Ironically, about 70 per cent of Mercedes-Benz’s Australian customers now pay either no LCT or a greatly reduced amount, thanks to more affordable cars in the Mercedes range and more efficient powertrains that qualify for tax breaks.

This compares with about 30 per cent just a few years ago.

The LCT rate of 33 per cent currently applies to the proportion of car price above $61,884, unless they consume less than 7.0 litres per 100km of fuel, in which case the LCT threshold is $75,375.

But MBAP senior manager of public relations, product and corporate communications David McCarthy said the LCT would likely be on the agenda in proposed free-trade agreement negotiations between Australia and the EU over the next few years.

“Should those (negotiations) progress, I think you will see the LCT front and centre,” he said. “The EU has previously regarded the LCT as a false tariff, and we agree.”

 center imageLeft: Mercedes-Benz Australia public relations and corporate communications senior manager David McCarthy.Such a deal could not only mean the end of the LCT but also the 5.0 per cent import tariff on all cars shipped from Europe, meaning luxury car buyers could save thousands of dollars in tax. The tariff is already a thing of the past with Thai and United States imports, and is set to be introduced on cars from Japan, South Korea and China if all these free-trade deals go through as planned.

Mr McCarthy said any free trade deal with Europe was likely to take at least two years, possibly after the planned free trade deal with Japan was introduced in two and a half years.

He said the Australian government was not going to give up the tax voluntarily, as “$500 million (in annual tax revenue) is a pretty loud voice in the current environment”.

“But it becomes increasing hard to sustain,” he said. “Buyers are certainly aware of it. Customers can look at a quite an expensive car and they look at the amount of luxury car tax – they are not happy.” Mr McCarthy said Mercedes-Benz had discussed the LCT with the EU years ago.

He described moves to remove the tax as part of a free-trade agreement as a “long hard road”.

“We feel comfortable the case is sustainable, particularly when you look at the cars it is applied to,” he said. “It is predominantly applied to some segments of European cars.”

Mr McCarthy said no other luxury goods in Australia were subject to such a tax, making it indefensible.

He said that while neither of the major parties would commit to removing the tax, the Greens were toying with a proposal to introduce another level of tax breaks for even more fuel efficient luxury cars.

Mr McCarthy said this could apply to luxury cars with a fuel consumption rate of 4.0 or 5.0L/100km, which could then have a LCT threshold of, say, $100,000.

He said such a scheme – which could perhaps apply to plug-in hybrid vehicles being considered for Australian roads by Mercedes-Benz – had merit, but he doubted the federal government would consider it under the current conditions.

According to pricing and fuel economy figures already released by Mercedes-Benz for its all-new, top-selling C-Class that will be wheeled into showrooms this weekend, none of the initial range will carry a full LCT penalty.

However, when the thumping twin-turbo V8 C63 sedan arrives next year, a LCT slug is almost a certainty.

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