PORSCHE Australia has welcomed the impending removal of the federal government’s Luxury Car Tax (LCT), but cautioned that any sudden cancellation of the controversial excise could be detrimental to the car industry and consumers alike.
The end of LCT is nearing reality, thanks to the Federal Government’s ongoing negotiations for a free trade agreement (FTA) with the European Union.
It’s likely that any successful FTA would include “reciprocal elimination of barriers to trade and goods” – meaning no more LCT.
Chris Jordan, Porsche Australia's Head of Public Relations, said that while Porsche welcomed the prospect of an FTA, it was wary of any sudden removal of the LCT, due to its potential to harm resale values.
“Our position is that we would like to see it removed, but in an orderly way,” he explained.
“Not just if you do it, but how you do it, is very important, given that for so many of our cars it (LCT) is such a huge proportion of the sales price.”
While the elimination of LCT will be a boon for new car buyers, Porsche is concerned that its existing customers are not hit by a sudden, large drop in the value of their existing vehicle.
This is particularly the case “when you are selling cars close to that $400,000-$500,000 mark”, said Jordan.
“At that point LCT is a huge proportion of the sales price, so how that gets phased out is an important topic,” he added.
The concerns are not unwarranted, with LCT adding roughly $2100 to the price of an $80,000 vehicle, with any optional accessories fitted counting toward the amount of tax levied.
The $1.1 million recommended retail price for a Rolls-Royce Phantom, for instance, includes $236,000 in LCT.
An overnight dumping of the LCT would instantly reduce the sale price for many luxury cars in Australian showrooms, with an immediate flow-on effect to used-car values.
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Porsche Australia refrained from suggesting a specific model for the removal of LCT, but stressed a well-thought out plan was necessary.
“There are a few ways you could do it; we are not saying there is a single preferred option, but it’s important that there is a discussion around the decision-making process, so you didn’t just wake up one morning and it is wiped out,” Jordan said.
First introduced by the Howard Government in 2000, in conjunction with the removal of sales tax and the introduction of the Goods and Services Tax, the LCT is imposed at a rate of 33 per cent on the purchase price of a car above the threshold of $66,331, or $75,526 for fuel-efficient vehicles that consume less than 7.0L/100km.
LCT has added more than $5 billion to government coffers in the last decade – with almost $700 million added in the last financial year alone.