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Excise tax revamp is cosmetic at best
Motoring Section, Bangkok Post (16 Jul 2004) ANALYSIS: Anticipated as a major overhaul, the new structure tilts favourably toward major carmakers

THAILAND: Planned changes in tax rates on vehicles, it seems, have fallen well short of expectations and if reports appearing in the media this week are to be believed, they are not far-reaching or extensive as anticipated.

The government had fuelled speculation of a drastic overhaul of the structure used to levy excise tax on vehicles, but it has apparently chosen to steer clear of that radical course, while continuing to strive to reduce vehicle categories and promote fuel-efficient cars, which is a welcome sign.

OPVS

The biggest implication on new car prices will be abolition of the OPV (off-road purpose vehicle) class used for sport-utility vehicles with four-wheel-drive systems. Currently, OPVs enjoy 29% tax rate, as against cars that are taxed at rates of 35% (under 2,400cc), 41% (2,401-3,000cc) and 48% (above 3,000cc or over 220hp) respectively.

Under the new system, OPVs would be taxed as cars at four different levels: 30% (1,000-2,000cc), 35% (2,001-2,500cc), 40% (2,501-3,000cc) and 50% (above 3,000cc).

Sport-utilities that will be hit hardest are luxury models with big engines like the BMW X5 4.4, Range Rover 4.4, Lexus LX470, Porsche Cayenne and Mercedes-Benz ML320. All will face excise tax of 50%, up dramatically from 29%.

Since such models are usually priced over five million baht, buyers with deep pockets are not likely to feel the pinch from increase in retail prices. Besides, distributors may cut their margins to minimise impact.

Mainstream SUVs like compact models will have minimal effect as they come with small engines that fall under 2,500cc.

PPVS

Originally, its was planned that SUVs based on pickups should also be taxed as cars like OPVs. But industry insiders said state officials were pressured by Japanese companies to keep the special PPV rate of 18%. Although the proposed rate has been upped to 20%, the PPV category still remains, and is seen as a compromise.

PASSENGER CARS

Despite the Excise Department's attempt to reduce the number of categories, passenger cars would have four classes, up from three.

It must be noted that vague increments have been applied to the new formula, starting from a 1,000cc accruement (1,000-2,000cc), followed by two sets of 500cc increases (2,001-2,500cc and 2,501-3,000cc).

One industry observer noted the Excise Department wanted to set the mark at 2,500cc since the Land Transport Department intends to make annual registration for cars whose engines displace more than 2,500cc more expensive.

This clearly means the department wants to penalise cars that consume more fuel, believing that bigger engines relate to more fuel consumption.

"Such thinking is purely old-fashioned," remarked executives of various luxury car distributors. "Bigger engines in some cases consume less than smaller ones due to technological advances in powertrains and weight-saving materials."

Some model ranges of a certain brand have proven that bigger engines are not necessarily thirstier than smaller ones.

According to tests by Motoring, the BMW 530i averaging 10kpl is just as economical as the 523i, yet more powerful due to better power-to-weight ratio.

Although sold abroad, Toyota says its new 2.4-litre gasoline/electric hybrid used in minivans sold in Japan can achieve at least 16kpl _ the same as the Corolla 1.8-litre gasoline version. Such a tax structure will hamper transfer of new technology to Thailand.

According to Mercedes-Benz figures, the E270 (2.7-litre) turbo-diesel achieves 15kpl _ enough to better saloons fitted with 2.0-litre gasoline motors.

Although purely an image-builder and low volume model, the Mazda RX8 showcases a 1.3-litre rotary engine capable of generating more than 200hp.

Also small in displacement, but capable of building power and thirst for fuel are engines using forced induction like turbochargers in the Volvo (2.3-litre) and Saab (2.0-litre) and superchargers (Kompressor) in Mercedes-Benz (1.8-litre).

ENVIRONMENT-FRIENDLY CARS

Under the planned tax overhaul, there was also a suggestion to have a special 15% rate for vehicles that come with alternative powertrains with fuel economy and reduced emissions in mind.

However, it hasn't been concluded yet what the criteria would be. Japanese carmakers are trying to push for hybrids, while the Europeans think otherwise choosing the diesel path.

Specifying a certain powertrain type would also have its pitfalls. Toyota, for instance, has hybrids for a variety of models with different levels of electric assistance yielding discrete fuel consumption figures.

It was summoned by nearly all car experts that the government should impose tax on gas-guzzlers based on fuel consumption, not engine type or size.

This practice is used in nearly all developed countries enabling carmakers the freedom to choose the type of powertrain they think can meet the level legislated by government.

It has also been noted that this application should also be used on passenger cars by imposing a progressive tax rate based on fuel consumption _ not engine size.

BEST LITTLE CAR

The Excise Department is still wary of this new category requested by the Thai Automotive Institute (TAI), although it has been temporarily consigned into the environment-friendly car category.

Although the intention is to provide Thai consumers with fuel efficient vehicles, TAI says that restrictions in body size is essential in order to encourage manufacturers to open a new segment.

If Thailand wants to become the Detroit of Asia, the automotive industry must have a second backbone _ the other being pickups _ in order to maintain its competitive edge against other contenders, particularly China.

China is set to become a production base for sedans ranging from subcompacts like the Toyota Soluna to luxury saloons like the BMW 5-series.

India has strong demand for city cars, but not the potential to challenge Thailand yet due to its weaker supplier network.

Most carmakers already recognise the rewards of investing in Thailand, which is why TAI says the Best Little Car project will benefit Thai consumer, as well as the industry as a whole.

Source: http://www.bangkokpost.com

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