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Is there any tax on options?

Discussion in 'Hong Kong' started by Lerxt, Apr 30, 2014.

  1. Lerxt

    Lerxt Member

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    A friend of mine with a new Audi A5 mentioned that he paid a 100% tax on his options when he got the vehicle. It led me to wonder whether the FRT waiver includes options purchased as well. Does anyone know the answer?
     
  2. DITB

    DITB Charged.hk co-founder

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    #2 DITB, Apr 30, 2014
    Last edited: Apr 30, 2014
    As long as the FRT waiver is in force - which it is until April 30th 2017 as it stands, then there is no tax on any extras for an EV, see http://www.legco.gov.hk/yr13-14/english/subleg/brief/sc100305cb1-1027-1-e.pdf .

    Whether you buy the minimum or maximum spec, or anything in between, the FRT on an EV registered in Hong Kong is 0 zero nil nothing nada.

    As you are paying FRT on an ICE car, it's triggered by the final price. Hence adding options will be in the upper bracket of the value of the car, just as if you earn more money, it triggers the highest tax band you are presently in.

    On an ICE car, any extra which increases the final price of the car in the 300K-500K range will automatically incur a 100% addition of FRT. As the price exceeds 500K, it's even 115% extra. As far as I can see, Audi A5 is listed between 500K and 750K in Hong Kong, hence it should be 115%, not 100% in his case. 500K-750K retail price means 355K-535K prices before FRT.

    Let's say we are adding 30K leather seats to a 700K ICE vs electric car being registered in Hong Kong "today":

    ICE:

    Without leather seats: 700K
    With leather seats: 700K + 30K + 115% x 30K = 764.5K HKD

    EV:

    Without leather seats: 700K
    With leather seats: 700K + 30K + 0% x 30K = 730K HKD

    Hence it is clear to see that the

    ICE car adds anywhere between 40% and 115% on any extras, depending on the price of the car, while an EV (as it is with the FRT exemption), doesn't add any tax to extras, no matter what the price of the EV or the extra in question is
    .

    The only exception to the calculation above is any extra added after the car is registered: Having a leather seat conversion after the first registration obviously doesn't incur any taxes.

    -

    When Lamborghini, Koenig, Ferrari and so on start making 5M HKD EVs, then I am sure the 2017 LEGCO FRT proposal will have FRT even on EVs, as they reach a certain price. In fact, I think just that is very likely: In 2017, there will be a cap introduced on EVs, so that as it reaches say 750K, it will start on 40%, then 70%, 100% and finally 115%, as the car reaches 1.25M, it will be taxed at the full 115% tax, just like an ICE. This would mean still no FRT on any EV up to 750K, while a 1M EV would incur 130K HKD FRT, hence a full spec Tesla model S of today (~1 M HKD) would cost 1.13M including FRT on 1/4-2017.

    This would actually be very easy for LEGCO to introduce as the 2017 amendment:


    The question remain still whether there in 2022 and onwards should be a difference in FRT between propulsion types. I still think more polluting technologies should pay more FRT, even in 2022, but fortunately, that's a discussion of 2022, not 2014.
     
  3. Vmax

    Vmax Member

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    Once HK government will impose any FRT on more expensive EVs, the whole EV idea will be totally diluted. The vast majority of HK people will opt for ICE cars, as with FRT for the same price they will always get a bit "more car" compared to an EV.
     
  4. markwj

    markwj Moderator, Asia Pacific

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    DITB,

    Nice explanation, but a couple of clarifications...

    Accessories added within the first six months after registration are _supposed_ to be declared and are taxable. Hard to enforce, but tax avoidance if you don't declare, nevertheless.

    An interesting topic that came out of this year's renewal is that the expiry date of the FRT exemption can be changed relatively easily (by legco resolution), but to change any of the terms requires a legislative change.
     
  5. DITB

    DITB Charged.hk co-founder

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    Thank you for the correction and comment, Mark. I will leave my original post to avoid confusing your post.

    Regarding the legislative change, I cannot see the FRT NOT being changed in one way or the other, come 2017. Instead of making an entirely different system, the 750K HKD initial offset will ensure fairness throughout. We saw during the negotiations this year that there is some resentment for sponsoring reach peoples toy, so imagine a 5M HKD sports car fully EV (they WILL come), then the green-ness will be out the window. A 750K offset will still make a 5M HKD car somewhat cheaper than a comparable ICE, though it will incur some FRT.

    If the alternative is no exemption at all, I would prefer it this way for sure.

    Vmax, as technology evolves in EVs, exemptions will be less and less needed. ICE cars are so optimised already, while EVs have plenty of room for price reductions in batteries, mass production savings as well as the advantage of much lower fuel and maintenance cost. Imagine having 48 valves adjusted on your V12? And all the other work, which is very expensive. Constant four-wheel drive sports cars with several motors will eventually beat the pants of any ICE, even a Bugatti Veyron. At least for acceleration.
     

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