2nd March, 2018 · Taxation Policy

Passenger Vehicle Tariff

The passenger vehicle tariff is a 5 per cent duty on vehicles entering Australia from a non- Free Trade Agreement (FTA) countries. While Australia has concluded FTAs with major source countries such as Thailand, Japan and Korea, hundreds of thousands of vehicles from Europe, the United Kingdom, South Africa and elsewhere still incur the tariff. Passenger vehicle tariff revenue was $540 million in 2016-17.

The cessation of local vehicle manufacturing in Australia presents an opportunity to re-evaluate the way passenger vehicles are taxed. Removing the passenger vehicle tariff can lead to significant reductions for consumers purchasing new cars.

Issue

Duties and tariffs on passenger motor vehicles entering into the Australia raised $470 million in 2016-17. A passenger vehicle tariff of 5 per cent applies to cars imported into Australia from a country with which Australia has no Free Trade Agreement (FTA). Almost 1.2 million cars were sold in Australia in 2017 with approximately 24 per cent sourced from non-FTA countries including Germany, England, Spain, South Africa, Hungry, and Czech Republic.

The cessation of motor vehicle manufacturing in Australia in 2017 and the global trend towards electric and autonomous vehicles presents the Government with an opportunity to revaluate the taxes and charges on the purchase of a motor vehicle. While the removal of stamp duty will require the co-operation of the States and Territories AADA supports the removal of the passenger vehicle tariff on 290,000 vehicles which could open up trade and investment opportunities in non-FTA countries and lead to significant benefits for consumers.

Background

Australia’s FTAs policy creates the opportunity to eliminate tariffs and foster trade and investment opportunities with our trading partners. Currently, around 76 per cent of new passenger vehicle imports are sourced from countries with which Australia has a FTA.

Australian passenger vehicle tariffs were reduced from 10 per to 5 per cent on 1 January 2010 and cars imported from a country with which Australia has a FTA are landed without being subject to any tariff. Australians have benefited and there are 67 brands and over 350 models available to a consumer in what is arguably the most competitive market in the world. Australia has 10 FTAs in force and with the cessation of manufacturing there is no justification to impose a tariff on a vehicle sourced from a non-FTA country.

Key points

  • 2 million cars were sold in Australia in 2017 with 24 per cent from non-FTA countries.
  • 5 per cent vehicle tariff applies to vehicles sourced from a non-FTA country including Germany, England, Spain, South Africa, Hungry and Czech Republic. Revenue was $540 million in 2016-17.
  • Australian motor vehicle manufacturing ceased in 2017 and there is little justification to impose a tariff on a vehicle sourced from a non-FTA country.
  • Removal of the 5 per cent tariff and luxury car tax could save consumers almost $5 billion in the price of new cars according to industry research on the ‘Benefits of reducing the age of Australia’s light vehicle fleet.’

Status

Government should remove the 5 per cent passenger vehicle tariff in ongoing negotiations with countries with which Australia does not have a FTA. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11) signed on 8 March 2018 is a step in the right direction.