Calls to abolish luxury car tax for EVs, as government loosens threshold for petrol cars

Australian drivers are calling on Scott Morrison to abolish the luxury car tax (LCT) for electric cars, and are angry about the fact that the exemption level for LCT has increased in recent years for petrol and diesel cars, but not for electric vehicles.

Due to the relatively high cost of batteries compared to internal combustion engines (ICE), electric cars are often priced higher than their ICE equivalents, with many models falling subject to the additional 33% tax for the difference of the value of the car above the threshold.

Originally introduced in 2001 to protect a local car industry – which no longer exists – the current tax does make a concession for “fuel-efficient” vehicles.

Currently, the threshold for non-fuel-efficient vehicles is $67,525 while the threshold for fuel-efficient vehicles is $75,526, according to the ATO website.

But advocates note (see above table) that the threshold for “other vehicles’ has been steadily relaxed over the last 10 years, while the threshold for fuel efficient vehicles has remained virtually static. They say the LCT for electric vehicles should be removed altogether.

They note that most countries look to support electric cars with rebates and fiscal incentives to encourage uptake of zero emissions transport, but the Australian federal government in fact further penalises more expensive EV models.

“We believe that the luxury car tax (LCT) should be abolished for EV/Hybrid vehicles as a direct incentive to purchase more environmentally friendly vehicles. United States currently still offer a federal tax credit as an insensitive to purchase EV/hybrid vehicles,” writes Brenton Sword who started the petition on change.org.

Currently, there are only a handful of electric vehicles available in Australia and of those, about half are subject to the luxury car tax, including the longer range version of the newly released Model 3 Tesla.

Simon Hackett, the former IT entrepreneur, redflow battery promoter and EV pioneer, put together the above graph recently for The Driven highlighting the lack of changes on LCT for EVs, while they were relaxed for dirty cars.

“LCT was brought in when we still had local volume car manufacture in Australia. Why do we still have LCT in Australia at all?” Hackett asked.

“When was fuel efficiency a luxury? All new cars should be fuel efficient in 2019, and its not as if LCT tax income is helping the government to support the essentially non-existent local car industry – and nor did it help to save that industry.

“There should logically be a “0% LCT for zero emission vehicles” tier in the LCT tax table. Why would you want to tax cars that are super-efficient  (and zero emission) in their use of their fuel?

Over 500 people have signed the petition so far, with many commenting the significant role electric vehicles have to play in improving Australian quality of life.

“Petrol and Diesel vehicles are costing tax payers indirectly due to health and environmental damage,” said signatory Dean Corcoran.

“The majority of the advantages of EV’s accrue to society as a whole eg., less polluting therefore helps the health budget, less reliance on imported fuel helps our balance of trade, less noise pollution,” wrote John Hoad.

“I am a strong believer in incentives for people to purchase EVs because these vehicles reduce the emissions that contribute to climate change and smog, improving public health and reducing ecological damage,” wrote Audrey Gathy.

Others point out that the LCT should be removed entirely since there is no local car industry to protect.

“We no longer have a local car industry to protect. I, like many Australians am a second hand car buyer I depend on buyers of new cars to supply used EV’s into the market. Reducing import duties and taxes is a positive way of increasing uptake of EVs,” said Brett Johns.

There is also the argue that abolishing the tax is akin to subsiding the wealthy, and that the government needs to do more than simply remove the LCT for premium electric vehicles.

Currently, the threshold for non-fuel-efficient vehicles is $67,525 while the threshold for fuel-efficient vehicles is $75,526, according to the ATO website.