The government's decision to raise VAT (value added tax) from 25 to 40 percent on cars with 1600-2000 cc engines is expected to plunge the entire industry into gloom since local car makers also import these cars.
The VAT hike has pushed prices up by TL1-2 billion ($1,500-$3,000).
The VAT rise went into immediate effect on Friday and is aimed at dampening domestic demand for cars of 1600 and 2000 cc -in Turkey the are primarily imported and blamed in part for a soaring trade deficit.
The move does not violate Turkey's commitments to the European Union because, the domestic auto industry does produce engines larger than 1600 cc (although in negligibly small numbers) the private NTV news channel quoted a European Commission source as saying.
"It will affect the entire industry as local producers are also major importers of those cars," he said.
But Azmi Kelemcisoy, general manager of BMW importer Borusan Oto, warned, "Still, this is a veiled customs wall and Turkey might face retaliation from other countries."
The decision applies to sedans, station wagons, race cars, snowmobiles, golf carts, jeeps, sports vehicles and other large private vehicles. According to the Finance Ministry, engines above 1600 cc make up 17 percent of total car sales, and of those, 3-5 percent are up to 2000 cc in size.
The VAT on secondhand sedans remains unchanged at 1 percent, and at 25 percent for cars with engines smaller than 1600 cc.
The new decision applies, however, to vehicles subject to financial leasing, up from 25 percent.
"As a result we are expecting a shrinkage in the market for 1600-2000 cc cars, because it means a 15 percent difference in price. We are revising our price lists," Kelemcisoy said. "But I don't think the government's decision would eliminate an imbalance arising from the surge in auto imports, because 1600 cc cars are also imported in considerable quantities.''
"Also we are expecting our customers to accept a marginal price gap and shift to above-2000 cc engines. My personal view is that the government opted for the simplest solution by aiming at imports but should have acted to encourage auto exports instead. It should make sure that local automakers are producing good-quality inexpensive cars in order to stay competitive," he added.
The VAT of a 2000 cc Renault Megane has risen to TL3.3 billion from TL2.1 billion, and of the Hyundai Coupe 2.0 FX to TL5.2 billion from TL3.2 billion, the Anatolian news agency reported.
"It is not possible to make a distinction between local and import cars in this case, because Turkey imports substantial numbers of cars below 1600 cc," Renault Mais executive Mufit Ataseven told the agency. "But more than 85 percent of the cars affected by the VAT rise are imported. There is little domestic output of engines above 1600 cc.
"It is clear that sales will shrink because the decision means a 10 percent increase in prices. We are going to take certain measures to ulfill targeted sales numbers, but it is impossible to avoid the extra cost on consumers." –(Albawaba-MEBG)
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