PAIS Tax reduction: a moderate impact on car prices expected

The Government will reduce from next Monday the COUNTRY TAX from 17.5% to 7.5% applied to imports of goods and freight services. There is a lot of expectation among consumers about the impact that the tax reduction could have on the price of new cars.

Various businessmen in the sector – importers and manufacturers – were consulted and gave clues as to what may happen. The conclusion is that we must be cautious with these expectations. One detail must be taken into account: businessmen will not easily admit that they are going to lower prices because this will slow down current demand. Having clarified this, let’s see.

The impact of the reduction of the PAIS tax on the price of cars

The first thing to understand is that, although the tax reduction is 10 percentage points, one cannot expect a linear transfer to the price to the public.

On the one hand, there are importers of brands that do not have factories located in the country. They represent no more than 3% of the market. In that case, there will be little change since, for some time now, they have been importing using financial dollars and not the official dollar, which is the one on which the rate is applied. COUNTRY TAX.

“In our case, we do not import by the official but by the Cash with liquidation (CCL). So nothing changes for us. We will only be attentive to what the manufacturers do – who import 97% of the cars – to see if we have to adjust some price, sacrificing profitability. Nothing more than that,” explained an importer of a non-registered brand.

Another issue to keep in mind is that the 10 points that the tax will be reduced by will impact the cost of importing the 0km vehicle, which is much less than the value at which it is sold.

“The tax is applied on the taxable base. Therefore, at the retail value, a 10-point reduction from PAÍS can represent 4% on the sales price,” said another importer.

As for the factories grouped in ADEFA, they clarify that a general 10% drop in the price of new cars cannot be expected.

On the side of imported vehicles, for the same reason just explained about importers. It is applied to the value of arrival at the port. Before Other taxessuch as VAT, Gross Income, “Luxury”, etc. and automotive and dealership margins.

As for domestic vehicles, it only affects imported parts. Domestic auto parts, labor costs, energy costs and services are all in pesos. All of this can represent 50% or more of the cost of manufacturing a car. Therefore, the tax reduction will not be passed on nominally.

Car prices have been increasing at the same rate as devaluation (2% per month) and inflation. On average, the monthly increase is between 2% and 4%.

If the impact of the reduction of the PAIS Tax is 4% or 5% on the final price, what the buyer will feel is that, for example, in October – if it is reduced in September – the price of 0km cars will not increase. Not that they will go down. The same will happen from December onwards if the official promise of eliminating it completely is fulfilled.

Another issue to consider is the stock level, which is about two months of sales. These 0km vehicles were imported or manufactured with full tax. They no longer benefit from the tax reduction that is made, so the impact on prices may be delayed a little until those units are sold. The tax benefit will be for vehicles imported or manufactured from September. In the sector, it is said that some car manufacturers stopped the nationalization of vehicles at the port to enter them in September with the tax reduction.

So there will be no benefit from the tax cut? The sector believes that, beyond the technical issue and the real impact of the tax cut, the measure will have a positive impact on the market.

“If someone can sell without lowering the price and improve profitability, the tax reduction will not be felt. If a brand sees that it is not selling, it will lower the price because of the tax and perhaps by a percentage greater than its real impact. Today, the owner of the ball is the market, the buyer. There are no restrictions, no permits are needed to import,” explained an experienced automotive businessman.

This is the key point. It will depend on each brand and dealership whether they aim to gain market share or improve profitability. It also depends on each player: if one car manufacturer comes out with aggressive prices, it will force the other to adjust its prices. And, in that case, it is possible that in a market with greater facilities for importing, more competition will end up benefiting the consumer somewhat.

Demand is stronger today than a few months ago, because prices have been adjusted through bonuses. The list price may not go down, but the bonuses may be increased. The conclusion could be that not all cars will go down 10%, but neither could it be that the market will be indifferent to the tax reduction.