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Automotive Taxes: Punishing the Middle Class

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An Audi A6 2.0T will cost no more than before, but a mid-spec Toyota RAV4 with its 2.2L engine will attract 50% more tax and duty. Read on to understand just how insane the new tax on so-called luxury cars really is.

In Trinidad and Tobago, we pay exorbitant taxes on motor vehicle purchases. We actually pay a lot more for a car than most probably do; sometimes twice as much or more, in fact. This is arguably the very reason why the foreign used market has been able to thrive as it has. When a vehicle lands in this country, it is subjected to Motor Vehicle Tax (MVT) and import duties, both of which scale based on the engine's size measured in cubic capacity (cc) and both of which are applied before sales tax (VAT). Needless to say, that is a lot of tax!

As a form of icing on the taxation cake, as of the April 2016 Budget Review, MVT and duty on vehicles exceeding 1999cc were increased by a whopping fifty percent.

Let's clarify something before going further: A car with a "2.0" engine is rarely actually 2000cc. Since manufacturers like to round up to a nice even figure, a 2.0L engine is usually more like 1998 or 1999cc. The "1.6" engines that are so common on the local market are typically about 1599cc and so on. This is the simple reason for low-end cars dominating the local market: engine sizes exceeding 1999cc attract quite a lot of tax and duty. Keep this in mind if you notice a dealer has significantly hiked the cost of a "2.0L" vehicle citing increased taxes; if it is not actually 2000cc then you may be dealing with a case of profiteering.


The Numbers

Here's how it actually works out. I hope this is correct; the new laws are exceedingly difficult to come by so I ended up running calculations off 2014 documents. You can see my prior blog entry for a rant about the lack of local information. Note that duty is a percentage of the landed value.

Engine size in cc MVT per cc Duty
Up to 1599 $5.00 25%
1600-1799 $8.00 35%
1800-1999 $15.00 35%
2000-2499 $37.50 60%
2500-2999 $45.00 60%
3000-3499 $52.50 67.5%
Over 3500 $75.00 67.5%

Just look at the magnitude of that increase at the 2000cc mark. It's more than twice the MVT and almost double the duty. Have you ever been overseas and wondered why the people there drove such nice cars? It's not because they are all rich; they just pay a lot less than we do. As a consumer in a supposedly free market you should now be asking: Is this fair?


Not A Luxury Car Tax

The increases made in April 2016 were purported to be a luxury car tax, but upon consideration, it's really just a penalty on the middle class. In a way, it can be looked at almost as a form of punishment for having earned just enough income for the banks to loan the kind of money needed for a family sedan or SUV...in exchange for a great big bite out of the family's monthly earnings.

Lancers and Almeras are not family cars; they are compacts. The Mazda 6, Nissan Altima and Honda Accord are the types of vehicles actually classified as mid-sized family sedans. They're fairly expensive locally, but even with our high taxes are completely attainable by dual income households or well qualified professionals. These vehicles start out with a 2.0L (~1999cc) engine, but fully loaded can end up with about a 2.5L (~2499cc) engine or larger. Several small to medium SUVs such as the Toyota RAV4 are in a similar situation.

Similarly sized sedans aimed at the more luxury-oriented market such as the Audi A4, BMW 320i and Mercedes-Benz C180 come in at 1999cc and under. This is is due to a trend where European manufacturers are increasingly opting for smaller, high-compression, turbocharged engines. Even the prestigious Audi A6 and Q5 come in under the 1999cc threshold. These luxury cars will not be affected by the new rules. Wrap your head around this one: A Porsche Macan currently attracts the same MVT and the same level of duty as a Hyundai Tucson, and neither one is affected by the 50% increase. That's how arbitrary it is to determine luxury by engine size.

Are we about to see a market where a Benz will be cheaper than a similarly sized Nissan? Are we going to see a market where the people who can probably afford to pay more will not be paying any more, but the family that just makes enough for a larger car will have to settle for less? That can't be fair, and it does not affect only a select few: Just look at how many family sedans and SUVs are on our roads. It does not matter whether those cars were purchased new or foreign used; MVT and duty apply to both.

So yes; if you drive a foreign used vehicle and think this doesn't apply to you, then think again! Why do you think you couldn't buy new in the first place? Even with that foreign used option, how much of the cost do you think went into duty and MVT?


Enter Alternative Fuels

At the very least, I should probably note that duty and MVT on hybrids (1999cc and under, in any case) and electrics have been waived. Now MVT and VAT were already proposed to be waived in the 2014/2015 budget, so this seems to be just the removal of duty. This is nonetheless a fantastic deal and I hope that the dealerships respond in kind to make these vehicles readily available. I do however find it a little bit silly to cap the hybrid exemption at 1999cc; I thought the previous waiver was across the board, and in any case that size seems quite arbitrary in nature. In any case, it is certainly not the exclusive domain of high-end vehicles. Indeed, if I interpret correctly then this arbitrary cap will ensure gas-only models continue to dominate the mid-size segment as it effectively makes options such as the Toyota Camry Hybrid and Ford Fusion Hybrid (both 2.5L on the gas side) uncompetitively expensive next to their gas-only counterparts.

What about CNG, you ask? The government has been shouting CNG at us for years, but the market is just not there. Very few manufacturers produce CNG models, and only one such model (the heavily marketed Honda City) is even locally available. For any other car, an aftermarket conversion kit must be installed that halves the trunk space and very likely voids the manufacturer's powertrain warranty. Who will be keen on honouring a warranty when the fuel system has been tampered with? Some people will do it, and it might be great on the public bus fleet, but CNG will never be mass market because the industry has gone in another direction - hybrid and electric. Spending millions to refit service stations will not change that simple fact.


The Fuel Subsidy

If you are wondering where this topic comes in then try to remember that taxes are paid in exchange for services from the government. They pay for all the big and little things we expect as being part of a society. In other words, we pay taxes to get benefits. It's not a donation.

For many years one could argue that it was only fair to pay such exorbitant taxes on a vehicle purchase, because the cost of fuel was subsidised. The link was not stated in the books, but one could view the subsidy as the unspoken benefit of paying high vehicle taxes. It is in fact quite difficult to identify any other benefit enjoyed by the motoring public, so it has to be fuel.

Now however, the subsidy on fuel is being lifted. Consider the cost of fuel at the pump four years ago and today:

Fuel Type Price per litre (2012) Price per litre (2016)
Diesel $1.50 $2.00
Super $2.70 $3.58
Premium $4.00 $5.75

In other words, as taxes on vehicle ownership have risen, so too has the cost of fuel. Not only does a rise in fuel cost inflate the cost of just about everything else, but the value for money of those vehicle-related tax dollars has disintegrated.

At the same time, we must recognise that we are in dire economic straits. According to the 2015/2016 budget statement, the state spent $19 billion on the subsidy from 2011-2015. That's an average of almost $5 billion annually. Now if we cannot afford that benefit, and the subsidy is to be removed, then I think the removal should be:

  1. gradual to avoid spiraling inflation that John Doe cannot afford, and
  2. done in tandem with a reduction in vehicle taxes out of the simple principle of fair value for money.

The above said, I do think a subsidy should be able to kick in to keep pump prices at a certain level - when oil prices are high and the country has extra income flowing in. I'll probably need to do a whole blog about that concept at some point.



If the intention is for that of a "luxury tax" then I simply propose that the extent of duty charged on any given vehicle be calculated based on the landed value of that vehicle rather than its engine size. If the principle really is for the wealthy to bear more of the burden, then that's how we should do it. Let the wealthy person with hundreds of thousands dollars in cash put out another hundred thousand if that's what we want to do, but don't make the family car more expensive than the bank is willing to lend John Doe at his fairly stagnant income level.

MVT on the engine size can perhaps stay, but at a reasonable, universal level per cc that is not determined by some policymaker's arbitrary idea of what is too big. I think this is only fair if as I outlined above, a subsidy should still kick in at a certain pump price/oil price per barrel threshold. All hybrids and electrics should of course be exempted from both MVT and duty, no fine print involved, as a genuine incentive for cleaner transport.

Will this make cars cheaper? Yes, it will. Will it put more cars on the road? No, probably not. Even if we take advantage of lower new car prices to phase out the foreign used market (slowly and with plenty of notice, so those businesses can adapt their business models), it should not have a major impact. Low income earners already have access to cheap used cars and that will not change. The calibre of car available to buyers will get better, that's all.

This does not mean that the government stands to lose money either. High taxes will still be collected on true luxury cars and a flat rate of MVT per cc will still be in effect. On top of that, there are numerous other valid taxes that can be levied: an environmental tax based on vehicle emissions levels is one option and a road use tax upon vehicle inspection or license renewal is another.

We can be creative about tax collection without punishing the middle class for affording the things they worked hard to get. Did the Minister of Finance consult anybody before making his decisions? It certainly doesn't seem so.

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What the Minister of Finance should do is to introduce the full tax regime back dated from the time this new Government took office on these so called luxury vehicles that Mr. Imbert and Company are driving around.

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What I am trying to say is that the Government must set the example if that is their agenda to punish the middle class. The Prime Minister must set  a proper example to his brilliant Minister of Finance and cancel the order for a Mercedes and I would strongly suggest that in such tough economic times the PM should settle for a foreign used , possibly a Toyota.

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It's interesting you say that willanr, because state bodies and Parliamentarians do not stand to be affected by this, given the various exemptions that they enjoy. It is the everyday buyer with a barely qualified for bank loan that has to bear the brunt of these taxes - taxes that can be otherwise collected in a more equitable manner.

Last year I was at the Nissan dealer and enquired about the Altima family sedan. The 2.0L was priced at a little over $300,000 with fabric interior and no sunroof. The sunroof was only available on the 2.5L and 3.5L models which were substantially more expensive - sufficiently so to compare to an Audi A4 or BMW 3 Series. Keep in mind that this was before the 50% increase which will not affect the Audi or BMW.

The Altima in the US on the other hand starts with the 2.5L engine option at US$22,500 - or TT$148,500 at an exchange rate of TT$6.60 to US$1.

The local buyer on a sub-$200,000 budget who could have had this Altima has to settle for a Sentra or even a Versa, which are much smaller cars with less features and far more vulnerable in a collision.

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Guest important to read1234


people read between the lines southern sales who sells audi are a PNM supporter and Francis Fashion as well no wonder they are increasing the taxes on on line shopping and Vehicle  Taxes Think who will gain from this HMMMMMMM i wonder........

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The article raises fair points, I too disagree with the present tax regime as it unfairly targets the middle class. However, this is the price to pay for voting in the corrupt last govt who basically raped the national treasury......

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The truth is, is that we have accepted corruption as a way of life, starting since the Williams era. In my opinion this is when the treasury was raped. Since that time it appears that every single administration was corrupt. Possibly the Robinson Government was definitely the least corrupt.

But we need to be in the present and come together as one people, one nation and demand good governance and wise use and accountability of our resources.

I am also serious that all these special privileges given to Government Ministers and other Senior Public Servants must be taken away. Perform first, be not corrupt and then we will reconsider. 

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Last government spent about 5 billion to build half of the Point Fortin Highway but this new government wants to spend 10 billion to finish the next half.

which is better? Dor⁉️

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Thanks for all the comments! While corruption seems to be part of every administration, I don't think a tax policy can be seen as corrupt - but certainly unfair and poorly considered. Unfortunately, every administration seems to run back to vehicle taxes, but then Parliamentarians enjoy exemptions - so they don't feel it.

There are two real issues I wanted this article to highlight:

  1. Making a mid-range vehicle unaffordable for the middle class. Some people spend long hours each day on the road, others live active lifestyles and others have large families. Whether for comfort, utility, safety or just the ability to choose how to spend hard earned money, shouldn't a gainfully employed person be able to afford a family sized sedan or SUV?
  2. We need to start demanding value for our money. When we pay tax to the state, are we not supposed to enjoy something in return? Automotive taxes are not broad like VAT or income tax; they are specifically automotive - what benefit are we getting in return from rising automotive taxes?

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let's be clear:

policy is geared to an objective.

the question should be - what is the objective?

we have a number of traffic-related concerns that require policy intervention, as it impacts the society as a WHOLE and not the comfort of the individual.

some of the traffic-related concerns include:

- too much cars on the road, causing traffic jams, causing a waste in fuel.   While everybody using their car is a comfort and convenience to the individual, it is a negative impact on society as a WHOLE.

- too much large cars on the road, in the traffic jams, wasting MORE fuel.  So while the option to buy a large, big engine car is a great convenience to the individual, it exacerbates the negative impact on society as a WHOLE.

-  the fuel subsidy has a double impact on the economy:  First it drains away resources from development to support the convenient burning of fuel in traffic jams.  Second, it undermines the profitability of the State Enterprises (Petrotrin and NP) which we need to contribute to our treasury, so that the State can develop our infrastructure and human capital.   So while having cheap fuel to burn in traffic jams is convenient to the individual, it has a squared negative impact on society as a WHOLE.

-  purchasing vehicles, luxury or not, require foreign exchange.   Foreign exchange we need to drive capital development of the country, as opposed to recurrent, wasteful, convenient, consumption.   So while it is convenient for some households to be so apathetic to car pooling that a house of 4 has 6 vehicles, it has a negative impact on society as a WHOLE.

- too much high powered cars on the road that optimally operate at speeds beyond the design characteristics of our roads.   These larger engine cars contribute to the spate of persons "losing control of their cars" when speeding, resulting in road carnage.  So while the option to buy a car that drives really fast, is nice and comforting to the individual, it has an overall negative impact on society as a WHOLE.


All this to say, I'm neither here nor there with the imposition of this tax.  Sure, it's a way to raise revenue, but it's also a way to control consumption habits.   Maybe the Gov't is telling us to rethink our love affair with convenient consumption on gas guzzlers?  Maybe in that rethink we can decide to consume and use our motor vehicles more efficiently, as opposed to conveniently (only)?  Maybe, there's a drive for us to consider car-pooling, public transportation use, or tiered work hours as means to treat with traffic congestion?

The low and middle class are NOT buying 2000cc vehicles.  the upper middle class and wealthy are.  Let them PAY the full amount for their convenience.  Let's stop asking to subsidise their extravagance under the mask of convenience for those who don't benefit from it.

There are a lot of things that this conversation could have gone into, but instead it focussed only on maintaining the discussion of convenience.  When the conversation morphs into something that treats with benefiting society as a WHOLE, then maybe, we can be on the way to nation building.

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what pollutes the earth more fossil fuel or hybrid drive cars / do u c the pollution to the earth that is cause by mining for earth minerals that goes to d manufacturing of batteries for electric and hybrid vehicles ?

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Thanks for that contribution Guest!

You have raised some very important points - many of which I disagree with - but important, valid points.


You are correct to ask: What is the objective?

It can't be number of cars - we can't control that through tax. We have already seen that excessive taxes do not slow down sales. Increased car ownership is a simple consequence of an employed population. There will always be those who can afford new cars and others who will buy the old used ones.

It can't be to conserve fuel - "T" class vehicles like the Hilux, Ranger and Navara fall under an entirely different tax schedule that has been left alone. Diesel may be cheaper per litre, but these vehicles are quite inefficient in terms of MPG compared to their gas burning counterparts.

It can't be forex - the cars are taxed in TT$ after they land in the country. If a Japanese 2.5L sedan has a similar showroom price to European 1.8L sedan with taxes applied, the buyer will just be tempted to get the more "upscale" European car - which would probably have cost more in forex to import but had less tax in local dollars to pay.

It can't be speeding - speed will never be resolved by taxing larger engines, or our roads would be less dangerous, not more dangerous, than other countries. Speed is controlled by driver education and enforcement, neither of which we can claim.

It's hard to see where what policy position the increase is coming from other than collect more tax.


I also want to address these points:

- We really don't have a love affair with gas guzzlers in T&T - there are hardly any on our roads. We do have a love affair with our cars, and we don't maintain them very well. To this end, I proposed an emissions tax that tackles poorly maintained or inefficient engines.

- 2000cc is an arbitrary size found in everything from compacts to Porsches and is a terrible way of gauging what is luxury. Middle class buyers can already get larger through 5+ year loans, foreign used options, or "T" vehicles, and the upper middle class are a subset of the middle class - the middle class is large and varied. I do fully support high taxes on the wealthy and proposed a tax on landed value as a means of doing so.

- An important part of benefiting society as a whole is not to limit the choices of that society. We can't encourage people to better themselves if the rewards of success get further and further out of reach. We can't ignore certain issues just because they don't affect "everyone".


All this said, I appreciate your feedback - we need differing views to understand each other and find ways forward! I hope you keep an eye on this blog as I want to write something on mass transit soon. I'm sure it will hit on some of the issues you are concerned with, specifically reduced vehicle usage and nation building.

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20 minutes ago, Guest josh said:

what pollutes the earth more fossil fuel or hybrid drive cars / do u c the pollution to the earth that is cause by mining for earth minerals that goes to d manufacturing of batteries for electric and hybrid vehicles ?

Thanks for responding josh! That's a great question and I actually read an article about that not long ago but the comparison was for electric versus gas. As I recall, the electric car is still greener, but only after about a year of usage. A consideration was also where the grid power was coming from as the car has to charge by plugging in. They are therefore greener in countries that make greater use of renewable energy for their power grids.

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He did consult someone....their financiers...then they decided to create a tax that the uninformed public would see as a benefit to the poor and middle class, when it really only benefits the rich.

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The bottom line to all these excellent  comments is that the Government definitely appears to not have a plan. They are doing things willy nilly and are very arrogant.

I fully support the views of the Rev. Daniel Teelucksingh as well as those of David Abdullah. What is the IMF doing in Trinidad?The IMF is a body that should be dismantled.They offer solutions that includes the reduction of jobs in the public sector, cutting back on social programmes, increasing taxes and anything that can bring hardships to those most vulnerable. According to The Reverend we have the talent and resources that can properly advise the Government. But we have this mentality the foreign whites are more intelligent than locals. I am really sorry to have made this comment but it is the truth.


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I particularly want to pay attention to part that says we pay taxes to receive certain benefits. But historical we don't get those benefits unless there is a pending election.

My biggest pet peeve, as we're talking about car/driving tax is fact that those taxes should benefit us with good roads to drive on. Yet we have to be constantly be playing dodge ball with the holes on the road, and system is designed to prevent us from easily affording the vehicles that handle our roads better. 

We have free tar but our roads can't compare to those in Barbados, St. Lucia or Grenada who has to buy our tar to build their roads. 

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Thanks that contribution Wussy - and an excellent point indeed!

We should be ashamed of our roads given that we have the pitch lake right here. Even when taking care to avoid potholes, there are so many bumps and warps and ridges and so on that all sort of rattles begin to develop, not to mention accelerated wear and tear on tyres and suspensions. One also has to wonder just how many of our accidents could have been avoided with properly maintained roads.

We need to stop treating taxes as a donation and demand value in return for the dollars we hand over.

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Diode, I have no idea what your profession is nor what you have been trained in academically. But it seems to me that you do not have the slightest idea about public economics. There are too many people in this country with an opinion that are not constructive or mean little as they non-experts regarding the points they are trying to make. The dangers of blogs are evident when people with little knowledge try to add value to discourse but instead, are damaging it unconsciously. 

The points "guest guest" made, regarding the benefits of society as a WHOLE, are on point. Whether you agree or not, is your valid right. However, your criticism on those points looks like a first grader trying to comment on university material. 

What we call "deadweight loss to society" in public economics, is what "guest guest" is referring to as "little benefits to society as a WHOLE". They are based on "negative externalities" which are costs incurred by society through faulty policies or damages incurred by usage of a product. Very often, the costs of negative externalities have not been internalized, meaning that the negative costs to society are not covered in taxation or in the price of the good.There are many ways to counter this. One such way is taxation. Excise tax is a taxation levied on the sale or usage of a product/good that create negative externalities to society. In Trinidad there are too many negative externalities that are unaccounted for. The many refineries create pollution that contributes to an increase on healthcare costs. Or the fuel subsidy creates the externality that it supports more cars on the road, increasing pollution, road usage and time wastage. Who accounts for all those costs? Not the consumers, but the government. 

Too many administrations before the current have ignored negative externalities. They haven't countered them, but rather supported them, and in many cases even made them bigger. With an endless income of oil wealth, this was never really noticeable. But now the bubble has burst. 

I think Trini's have grown accustomed to a certain lifestyle, enjoying certain benefits. A bubble in which externalities are not accounted for, nor solved. A bubble in which a household can own multiple cars. A bubble in which low taxation (yes low compared to most of the world) is the reality of the day, yet people complain. I think more people should open their eyes and not speak in ways these new taxes are hurting their pockets. To undo an unjust lifestyle is never easy, but once you start seeing as an unsustainable way of life (for this generation and the next), it will be inevitable. 

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Dear Guest Guest, whilst you have raised many good points, your criticisms on Diode's view suggests that you see things only your way. The so called luxury vehicles are not that much larger than a number of conventional cars. In a lot of cases they are a lot more fuel efficient. Their emissions are less harmful than low cost vehicles. My observation is that you hardly see these so called luxury cars speeding or being driven in a reckless manner. If statistics were available you will notice that most vehicular accidents are from low cost vehicles as most of the drivers of these vehicles do not properly observe regulations and very often drive their vehicles above the speed limit, Most of the high end vehicles are driven by more mature people. In terms of the removal of the gas subsidy, this started with the PNM administration. However at some stage the subsidy had to be removed, except a lot of citizens are concerned  by the timing. I have maintained that this present administration is yet to come up with a plan. My view is that the economy can be properly managed with an oil price that may fluctuate between US$35 to US$40 per barrel. We have a lot of brilliant minds in the country that can be of assistance to the Government.

However I am also of the view that the previous administration went way overboard in their spending. When spending of that nature occurred under the PP it left a lot of room for corruption.

But glad to hear from you.

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Guest A, thank you for the contribution - and criticism. Please allow me to respond!

I don't claim to be an economist, so this blog is well and truly from the stance of a consumer - a tax paying consumer.

Here's the thing: Decisions cannot be made in an economic bubble and then explained away with loose by-the-way terms (like "luxury tax") while not taking the time and effort to fully explain the reasoning. When they are, blogs like this will have a field day, and something just might spread like wildfire. I am still trying to get over how many views and shares this article has received - it is unprecedented for this site. It tells me that this is an issue that people really are concerned about.

You talk about the dangers of blogs but I have to vehemently disagree! In this information age, in the era of social media, this sort of avenue is among most powerful tools ever made available to the public. It forces decision makers to come out of their bubbles and consider the views of the people actually affected by the decisions that are made. This is not a danger; this is power of the people in action. If a blog triggers a conversation...then it has done something right.


So let's get on with it!


There are two main problems: The first is that you haven't actually demonstrated that any of the points I made are factually incorrect. The second is that the situation you outline, while sounding all well and good, are completely unsupported by the measures instituted by the government.

Let's look at handling the bleed of forex that I tried to explain to guest. Bear with me one more time on this: At which point do the US dollars leave the country when a vehicle is brought in? It's not in the taxes; it's in the money paid by the dealer to the international supplier. Now, if a fully loaded Nissan Altima and an Audi A4 are in the same price bracket, will that not increase the demand for the more prestigious Audi and decrease the demand for the less prestigious Nissan?

Now Nissan and Audi belong to different market segments. The only reason the two can be considered competitors is because of the arbitrary use of engine cc to determine luxury, when the actual luxury brand carries a smaller but more advanced engine. The Audi is manufactured as a more pricey vehicle and costs more forex to bring in than the Nissan, so how is making the Audi more attractive possibly addressing the forex situation?

What about health and environmental issues? Nothing about our policies say that we are trying to cut down on emissions.

  • As an energy producer, we are (understandably) doing everything we can to keep the oil companies here and operating. We're not trying to get less coming out of their refineries; we're trying to get more!
  • We're not trying to attract the buyers of inefficient, cheap to fuel Navaras and Hiluxes and Rangers back to cars - the 50% increase does not touch them, and in fact it just makes them even more attractive now.
  • We have no emissions taxes on new vehicles and no fines for poorly maintained, often visibly smoking engines - we're not trying to discourage that in the least.

The subsidy does not support more cars on the road; with public transport in a mess and our cities hot and filthy and dangerous to walk, the overwhelming majority are going to suck it up and bear the higher cost of gas. None of the subsidy cutbacks have dissuaded driving, and no increase in automotive taxes will either. There are ways to tackle the traffic situation, but taxation isn't one.

Now I do agree that the subsidy is unsustainable, and I did get into that issue. My point however is that taxes paid need to be reflected in the services provided by the state. All I'm saying with regard to the subsidy is that as we cut it back, the automotive taxes should be going down, not up, as we are losing that benefit.

I would love for us to make real steps toward sustainability, but sustainability doesn't come by politicians passing legislation in a vacuum. It comes by conversation, and education, and understanding, and compromise...and real, long term policies that are both fair and actually reflected in the actions taken. Right now, this is anything but the case and that is a road to rejection by the public.

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