Last week the Productivity Commission (PC) released a report which presents views on the costs and benefits on industry-specific assistance to the automotive manufacturing industry. The report was written subject to a break from tradition - there is now a new structural change in place that will affect industry policy over the next few years as Ford, Holden and Toyota close manufacturing plants in Australia.

The significant extracts from the report which will be of interest to you are outlined below:
  • Apart from direct budgetary assistance, there are other industry policies in place that have an influence on the economic well-being of the automotive manufacturing industry in Australia.
  • As importers can claim exemption from the $12,000 second hand import duty once a Vehicle Import Approval is granted, this duty is essentially redundant and should be removed from the Customs Tariff as soon as practicable. Removal no earlier than 2018.
  • The removal of the Luxury Car Tax (LCT) and its replacement with more efficient sources of revenue should be considered as part of the Australian Government's Taxation White Paper.
  • Unless a preferential trade agreement is in place, a 5% Tariff applies on vehicles imported into Australia. There is no industry protection rationale for maintaining the Tariff on imported passenger and light commercial vehicles after motor vehicle manufacturing ceases in Australia.
  • The PC notes the effect on government revenue (the Australian Government expects to collect $920 million from Tariffs on passenger motor vehicles in 2013-14), and the commitment made by the Treasurer to consider this matter as part of the Australian Government's Taxation White Paper.
  • In recognition of the complexity of Tariff removal, the Commission intends to prepare a submission to the Australian Government's Taxation White Paper that comprehensively considers the economic and fiscal impacts of all remaining Tariffs, the potential costs and benefits associated with their possible removal, and the comparative efficiency of alternative revenue sources.

We are somewhat confused by the PC's position on Tariff removal, put quite simply, Tariffs relate to Industry Policy and are not a tax, therefore why should their removal after manufacturing ceases (i.e. from 1 January 2018), be considered under a review of taxation?

What does this mean for you?

Between 1/01/2015 and 1/01/2018 there will not be a level playing field for motor vehicle import/distributors given the evolution of Free Trade Agreements (FTA's) with countries such as Japan and Korea in this time frame.

Therefore, vehicles from these origin points will enjoy duty free status whilst vehicles from other origin countries will continue to pay 5% duty while Australian vehicle manufacturers exit from Australia. As a consequence, the deferral of removing the 5% duty after manufacturing ceases during 2017 (i.e. from 1/01/2018), will provide further price distortions in the Australian retail market favouring vehicles sourced from the FTA countries of manufacture for taxation revenue reasons versus sound industry policy.

For more information or to download the full report visit the Productivity Commission website. 

If you have any questions or concerns regarding your situation please do not hesitate to Russell Wilkinson or your local Crowe Horwath advisor.

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