Argentina: top-end car tax starts to bite

Nice car

Tough times for consumers in Argentina. Thanks to a 35 per cent tourist tax, many are swapping the white sands of Uruguay and Brazil for local beaches during January’s summer holidays (though the head of the federal tax agency found his way to a five-star hotel in Rio).

And now carmakers have begun to release prices under the impuestazo, a whopping new tax on top-end models.

In another move to protect dwindling dollar reserves it uses for debt payments and energy imports, the government slapped a two-tier tax on luxury cars. It hopes to cull demand, force dealers to reduce imports and halt the narrowing trade surplus.

The measure hit consumers this month. It levies a 50 per cent tax on cars worth more than 210,000 pesos ($30,000 at the official rate, which is 62 per cent lower than the black market rate) and 30 per cent on models valued at more than 170,000 pesos ($25,000).

The result? Enrique Vitale, a sales executive at a BMW dealership in Pilar, just outside Buenos Aires, told beyondbrics that no cars have been sold there yet in January (compared to more than 20 in October).

As manufacturers experiment with the tax in a bid to keep the market active, prices of some models have rocketed. A Honda Accord V6 is listed at more than 700,000 pesos ($105,000), nearly double what it cost last month. The price of a BMW 328i has risen by 64 per cent to $117,000.

Argentines are used to eye-watering price tags. Government restrictions mean there’s a near ban on importing iPhones (though the vice-president was caught tweeting with one). Most people escape to Miami to buy them and hope to avoid paying the 50 per cent customs duty on their return.

But even that’s cheaper than purchasing one of the few that make it to stores in Buenos Aires. High taxes mean one retailer, with a stock of just 10, is selling the iPhone 5 for 13,299 pesos ($2,000).

Argentines bought nearly a million new cars in 2013, a record. But the car dealers association expects sales of at least 120 top-end models hit by the impuestazo to plunge by half this year. And there’s bad news for consumers setting their sights lower.

As Carlos Cristófalo, a car industry expert in Buenos Aires, told beyondbrics: “In the medium term, the measure will also affect cheaper cars as manufacturers – compensating for the loss of high-profit sales of premium models – are forced to increase prices.”

Some in the sector have grown tired of state intervention, to say the least. In a separate move last month, the government told car traders to reduce imports by 27.5 per cent over the first trimester of 2014. The president of the car import chamber’s response? “First the tax and now this. The government’s telling us how to live.”

Related reading:
Argentina: who’s got the power (grid)?, beyondbrics
Argentina’​s tourist tax, bb
Argentina: price freezes herald start of political battle, bb