A limit of two million pesos: more and more cars are on the verge of paying internal taxes

OCTOBER 15, 2020
More cars are at the limit of paying the "luxury" tax

With the latest updates to brands' price lists, there are more and more cars on the verge of starting to pay internal taxes: the misnamed "luxury tax", which in practice affects more and more mid-range products ( see decree ).

The strategy of the brands is to overlap more and more models in the limit of two million pesos: it is the value of sale to the public from which the first scale of internal taxes begins to pay. This border is not exact: some brands manage to stretch that limit a bit, playing with the commission of the dealers. It is because the tax base is calculated before commissions (and not after).

The newspaper Ámbito Financiero published today the list of all the models that today are on the verge of paying internal taxes in Argentina. There are included several vehicles of national production: Peugeot 208, 308, 408, Citroën C4 Lounge and Chevrolet Cruze. The Toyota SW4 manufactured in Zárate has been paying this tax for a long time and its prices distorted by the tax burden exceed four million pesos, even in the “entry-level” versions. Pick-ups have always been exempt, as they are “commercial vehicles”, intended for work.

In practice, it is almost impossible to get these models at list price. To avoid the tax, there are dealerships that charge significant surcharges beyond the official value. How to act in case of overpricing, in this note.

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Note from the newspaper Financial Scope
Due to the rise in the dollar, more cars are at the limit of paying the "luxury" tax

By Horacio Alonso

In an ultra-dollarized market such as the automobile, the rise in the exchange rate has consequences. The main impact is the increase in prices beyond these being set in pesos. With 70% of the supply of vehicles imported, any jump in the US currency is reflected in the dealer listings.

Although this situation affects everyone equally, there is a segment of the 0 km that suffer it in a special way. It is the platoon of models that are around $ 2,000,000 because they are at the limit of starting to pay Internal taxes.

As of September 1, the tax base of the first scale of this tribute was updated to bring it to $ 1,451,300 of factory output or imported distributor value. With the application of VAT plus the commission margin, the price to the public of the vehicles that must be paid is slightly above those 2 million. There is no exact value because it depends on the calculation method and the possibility of giving up part of the profitability.

If this threshold is crossed, the vehicle must begin to pay a 20% rate of this new charge - considered as a “luxury” tax - but, due to the implementation characteristics, it implies a 25% price increase. This increase means that the affected vehicle is out of the market as there are no buyers who validate this increase. Companies try to keep their cars below the tax base so as not to be punished with greater tax pressure.

That is what happens today with many models that are "capped" at a value of around 2 million pesos. This is a term used in the sector to define models that are not augmented to avoid being considered a "luxury" car when, in reality, they are vehicles of medium or even small segments. The rise in the dollar pushes prices up and, to avoid paying that tax, companies resign profitability (in some cases they sell without profit) or, directly, remove from the supply the models that they cannot continue to sustain without an increase. According to a survey by Ámbito, there are at least 30 models that are at the limit of paying the tax.

The adjustment of the tax base is made quarterly based on a wholesale price index of 0 km. In the September adjustment, an increase of 6.42% was applied. The next adjustment will be made in December. The problem is that, since that last update, the dollar has risen around 6%, that is, it has already compensated for this increase and there is still a month and a half left for a new readjustment. In addition, in the sector they assure that the last modification did not recognize the rise in prices of previous months, when the Government modified the calculation method and “skipped” an adjustment.

If in any model, 54% of its value is taxes, in those who pay Internal, that percentage exceeds 60%. In addition to this, it is increasingly taxing lower-priced vehicles, clearly showing that they are not high-end vehicles. At the beginning of September, the first scale reached models of about $ 26,200, while today it affects $ 24,600 from 0 km. At this rate, when the end of November is reached, with a dollar that continues to rise, that floor can be drilled by a couple of thousand dollars, reaching 0 km of small segment.

In fact, Ámbito published two weeks ago that there were practically no models of less than a million pesos left. The cheapest ones already exceed that value but, according to the Internal tax base, from 2 million, they are already considered "luxury", which shows an unprecedented flattening in the price scale.

Source: Autoblog

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