Federal Chamber of Automotive Industries is renewing its call to abolish the Luxury Car Tax (LCT) as Toyota customers collectively pay more than the purchasers of Ferraris, Porsches, Lamborghinis and most other luxury cars.
The LCT was introduced on 1 July 2000 by the statute of A New Tax System (Luxury Car Tax) Act 1999. The intention of this legislation was to protect the local car industry which doesn’t exist any longer.
This tax is imposed on the supplies and importations of luxury cars and is in addition to any GST that may be payable. It is calculated on the value of the car that exceeds the luxury car tax threshold. The rate of this tax is currently 33% and the threshold for 2018-19 is $66,331. The rate of 33% is an impost on every dollar above the threshold of $66,331.
Ford, Holden and Toyota have recently shut their manufacturing factories in Australia.
The car industry argues that LCT is outdated and this fiscal protection is now redundant. This tax is adversely impacting on the family car buyers more than it does the owners of prestige car brands. Majority of people paying this tax are average Australians who purchase vehicles well under $90,000 to transport families.
Due to the relatively high cost of batteries compared to internal combustion engines (ICE), electric vehicles are often priced higher than their ICE equivalents. Hence, many models fall subject to 33% extra impost through LCT. Abolishing this tax will definitely be a positive way of increasing uptake of electronic vehicles in Australia and reducing the level of carbon dioxide in the atmosphere.
In 2017-18, the Federal Government collected $695 million in LCTs which accounted for only 0.2% of the total taxation revenue. Abolishing this tax will not create a large hole in the Federal budget.
In the financial year ended 30 June 2018, the Toyota customers paid a total amount of $99.7 million in LCTs compared to $97 million for Porsche, $84.5 million for BMW, $81 million for Jaguar/Land Rover and $45 million for Audi. In the same year, Ferrari buyers paid $30 million, Maserati $18 million, Bentley $17 million, Lamborghini $14 million, Ashton Martin $13 million, McLaren $7.5 million and Rolls-Royce $6 million. Only motorists who paid more than Toyota customers were the customers of Mercedes-Benz with an amount of $170 million.
In purchasing vehicles, Australian motorists already significantly contribute to government revenues through GST, stamp duty and registration fees. They pay 5% in import tariffs, 10% in GST and 33% in LCT if the value of the car is above the threshold.
There is also a loophole in the regulation of LCT in favour of certain types of vehicles. From 1 July 2009, fuel-efficient vehicles, defined as those consume 7.0L/100km or less, were given a higher LCT-free threshold of $75,000.
This means that a $69,200 Toyota Kluger and a $73,600 Toyota Prado attract LCT but many of the luxury brands will not as they are fuel efficient. In Audi range, 38 vehicles from its 90 models are exempt from LCT while 29 of 89 BMW lines, as well as 25 of 103 Mercedes-Benz cars, avoid paying any LCT.
A vehicle is taken to be a luxury car if its value exceeds the threshold (currently $66,331) which may not necessarily be a luxury car. It is also unfair that LCT is imposed on a luxury car but other luxury items or products such as yachts, private jets and furs do not have such impost.