27th July, 2015 · Policy Viewpoint

A Compelling Case Against The LCT

2 minutes to read

AADA recently submitted its Tax White Paper Submission to the Government uncovering more reasons why the Luxury Car Tax (LCT) needs to go
‘The LCT is a discriminatory tax on an Australian consumer, as a tax policy instrument is no longer relevant, has passed its used by date and should be abolished.’

These were the closing words in the AADA’s submission to the Government, concluding a six page document in response to the Government’s call for feedback on tax reform. As covered in previous editions of Automotive Dealer, the Government wishes to create a better tax system that delivers taxes that are ‘lower, simpler and fairer.’

As part of this commendable initiative, AADA highlighted how the current LCT is at odds with these objectives.

Whilst the LCT is estimated to generate $500 million of revenue (or about 0.1 per cent of Government revenue) between 2014/15, this comes at an estimated administrative cost of over $1.45 million per year, not to mention the burden on businesses managing the complicated paperwork associated with this tax.

In Australia, purchasing a new car already attracts a multitude of taxes, including GST, fringe benefits tax, customs duty, registration fees, insurance, stamp duty, fuel excise and the LCT.

In its submission, AADA states that ‘Australia’s LCT in the global tax landscape, penalises a consumer on a discretionary purchase of a motor vehicle [and] does not apply to other “luxury” goods.’

This last point is particularly poignant and highlights the injustice that cars are additionally taxed when luxury items such as yachts, furs and watches are not.

Opinions from other submissions and major industry players were also used.

For example, in a VACC submission, the Association noted: ‘The European Union, and some importers have criticised the LCT as a disguised form of protection for the Australian car industry’. It also says that ‘according to the European Commission, 90 per cent of vehicles subject to the LCT are imported and 50 per cent are from Europe.’

If the LCT is a (thinly veiled) means to help protect and encourage Australian-made cars, the fact that local manufacturing will soon cease is another reason why the LCT is now redundant – a point made by AADA.

‘Most if not all motor vehicles will be imported into Australia once manufacturing ceases and to selectively target and impose an additional tax on an imported motor vehicle to the exclusion of other ‘luxury’ goods is at odds with Australia’s trade liberalisation policies,’ the Submission contends.

AADA also drew on the accepted ‘principles of tax evaluation and design’, that is, the set of guidelines that any tax under scrutiny should be assessed.

These are equity, efficiency, simplicity, sustainability and policy consistency. These were explored in relation to the LCT, exposing further holes in the tax.

Of all the arguments put forward however, it’s perhaps this line from the Henry Tax Review (which called to abolish the LCT) that best sums up the situation:

‘Luxury taxes should not be used to raise revenue. They are inefficient because of their narrow tax base. Taxing luxury goods is also an ineffective and arbitrary means of redistributing economic resources.’

If the Government truly aspires to create a tax system that is lower, simpler and fairer it is hoped that they will take heed of this advice.

To view the full copy of AADA’s Tax White Paper Submission head to aada.asn.au