Eli5: Luxury Car Tax


Why do countries add a tax onto “luxury vehicles”? Just seems like another way to sting the customer another unnecessary tax?

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Luxury goods are bough by wealthy peoples who have more than enough money to live confortably, thus can pay more taxes.

It’s a good way to get more money to the governement without hitting the middle/working class.

Luxury good taxes have a few advantages over an higher income tax: they can effectively tax wealth coming from non income sources, and only affect non-essential spending (so people w/ high income, but also high spending on essential stuff such as rent aren’t affected).

Many countries don’t manufacture their own vehicles and very few countries manufacture luxury vehicles. Normal vehicles are necessary for the economy. Luxury vehicles not so much. This is one way to restrict sales of these vehicles to reduce the revenue going overseas rather than to local industry. If a country has some domestic car assembly factories, this further incentivizes sales of these vehicles over luxury vehicles.

Also, only fairly wealthy people can purchase these vehicles. So they are generally a bit populist “tax the rich more” strategy that might play well in politics. In general, these kind of taxes probably don’t generate a significant part of government tax revenue – but it is politically popular.

>Why do countries add a tax onto “luxury vehicles”? Just seems like another way to sting the customer another unnecessary tax?

A luxury item is, by its very nature, unnecessary, u/Peachy021.
In this line of thinking someone who **still** insists on purchasing a luxury item and thus burden a society’s productive output unnecessarily is taxed while someone purchasing only necessary items is not taxed.

These kinds of taxes generally encourage resource conservation while at the same time not putting a burden on those who cannot afford to be burdened any more. That can make them a very desirable kind of tax.

Because luxury cars are purchased by people who can afford to pay extra tax without causing any hardship or suffering. Especially compared to tax on necessities like food and housing.

Look at luxury tax’s as a means for more people to pay less Tax by having those that can afford it pay more the average person in theory had to pay less.

This goes for luxury goods, cars, houses… If taken to the extreme this could fund the entire government allowing the average to pay 0 tax’s if they buy 0 luxury goods.