How has the debate on reducing TCS affected the automotive industry?

Fundanur Ozturk, Ankara

CHP leader Kemal KilicdarogluAfter the promise of a reduction in the Special Consumption Tax (SCT) announced by . In the car dealerships where BBC Turkish speaks, it is clear that the expectation of a reduction in SCT affects both sales and purchase demands. So is lowering TCS realistic or a solution to high vehicle prices?

Kılıçdaroğlu has promised to reduce the SCT by a quarter for cars with a cylinder capacity of 1600 cc and below, and has urged those considering buying a vehicle to hold off on their purchases for a while.

On the morning of July 26, the decision was published in the Official Gazette authorizing President Recep Tayyip Erdoğan to increase by up to three times the lower and upper limits of the SCT and the tax bases on motor vehicles or reduce them to zero.

The president has the authority to change the SCT in the automotive sector: he can increase it 3 times, reset it

These developments have led to the expectation of lowering the SCT for anyone considering buying a car.

Turkish BBCSome industry representatives spoke with .

Automotive operator Göksel Erkoyuncu assesses the first market reflex as follows:

“Right now, everyone is putting off their plan to buy a car, waiting to see if the SCT reduction will come. Receivers have entered standby mode. But there are also those who want to sell their car, thinking that ‘when the SCT is reduced, the price of my car will go down’. In other words, it affected both buying and selling.”

A car dealer in Istanbul, who wanted his name to remain anonymous in the news due to business concerns, says: “Our sales have stopped, we cannot make sales due to the expectation of lowering the SCT, but this is a useless wait, it will just be lose the used car market.”

I get a similar response from another car dealership I called in Ankara. The seller says that the expectation of a reduction in the SCT had a negative impact on his sales for a few days:

“Furthermore, SCT’s expectation is not the only thing holding back our sales. Credits increased last year, banks began to have difficulties in lending.”

According to some representatives of the sector, it is difficult to predict in advance the trend of buyers.

Experts say it is necessary to wait for the sector data to be released at the end of August to see how much the debate over SCT regulation has ‘pushed’ the public.

Many officials from civil organizations representing the automotive industry stated that the expectation of reducing the SCT was a “political polemic” between President Erdoğan and CHP leader Kılıçdaroğlu and did not want their names to be included in the news.

Will reducing excise duty solve the problem?

Experts also argue that the automotive industry in Turkey cannot survive with such high taxes and cannot compete with the world.

However, according to experts, in order to assess how applications such as TCS reduction or tax base updating will affect vehicle prices, it is first necessary to reveal the reasons for the increase in vehicle prices.

The main reason for the increase in vehicle prices in Turkey is explained by the decrease in supply since 2020 with the pandemic.

Experts estimate that vehicle supply will not reach the expected level unless factors such as the global chip crisis or the exchange rate-related container crisis are eliminated, and that no tax breaks will be effective unless supply is provided. .

Stating that buying a vehicle in Turkey is not only for use but also as an investment vehicle, industry representatives believe that the demand for vehicles will not decrease in the near future.

An employee of a non-governmental organization, who wished to remain anonymous in the article, argues that the supply of vehicles in Turkey does not meet demand and argues that the reduction of SCT in Turkey is “fantasy” under current conditions:

“While the Turkish economy is in such a crisis, there is no possibility of reducing the SCT. Maybe the bases can be raised a little bit, which creates new demand and prices keep going up unless supply drops.”

“That is, as long as there are no new vehicles, the reduction in SCT will not change anything and, on the contrary, the increase in used vehicle prices will continue.”

Erkoyuncu, who sells second-hand vehicles, said: “Imagine they did SCT zero today. What’s the point if there’s no car on the market?” he asks:

“Buying a car is now an investment tool. Just like gold, it is in such demand because it is like foreign currency. As soon as the car absence is over, this will all become normal.”

The civil organization official notes that the chip crisis, which restricts the supply of vehicles, is a valid problem in the world and that chip production has decreased by 10 to 12% in the world:

“Companies prefer to use a limited number of chips in more equipped and profitable models, that is, in more expensive vehicles, which automatically reduces the supply of vehicles.”

‘The number of models in the 80% SCT segment is below 10’

In Turkey, 45% SCT is applied to a vehicle with a base price of up to 120 thousand TL, 50% for 120-150 thousand TL, 60% for 150-175 thousand TL and 70% for 175-200 thousand TL.

The SCT for vehicles with a taxable base (tax-free price) above TL 200,000 is 80 percent.

Due to the increase in vehicle prices, most vehicles in Turkey fall into the 80% SCT segment.

It is claimed that the number of models in the 80 percent SCT segment has dropped below 10, meaning there are a limited number of vehicles below 400,000 TL.

Erkoyuncu says that applying a higher SCT tax according to the price of vehicles is indeed beneficial, but this application has become dysfunctional due to rising prices:

“There is no longer a vehicle with a price of 120 thousand TL. Currently, it is necessary to pay 80% SCT to buy a vehicle worth 513 thousand lire. In other words, while the base price is 284k TL, you pay 513k TL with 80% SCT.”

‘There is no decrease in demand, we still have zero stock in all of Turkey’

We’re talking to a manager who sells new vehicles at a company in Ankara that primarily serves low- and middle-income consumers.

The official, who wanted the company and his name to remain confidential in the news due to commercial concerns, says that after the expectation of a reduction in the SCT, there has still been no drop in their sales, and that they still have zero stock in Turkey:

“However, there is no recession in the market at the moment. We, the Turkish chip crisis, etc. We are the company least affected by the problems caused by foreign materials and there is still no problem in our demand.”

According to the official, people in Turkey tend to buy cars with the idea that it will be more difficult to buy a car with each passing day, and this creates great demand in the market despite the economic crisis:

“The public has never seen car prices go down. Prices will remain stable at best, but we see a very small chance of a decline.”

Incidentally, in several galleries I’ve researched as a buyer, I see that new mid-range vehicles are generally not in stock, and even some don’t have a date on when they will be in stock.

The official says he does not expect an update from the SCT or tax base:

“For the SCT reduction to occur, the market needs to be stagnant. For SCT reduction to activate the market… All SCT reductions from the past to the present have always been like this.”

He also assesses that the increase in car prices is not only due to the increase in foreign currency, but that as the price of the car increases, it gradually enters a higher tax band, which in turn doubles prices. .

‘As the currency held steady, the number of opportunists decreased’

It is claimed that due to the relative stability of the exchange rate mainly in the last two months, the so-called “opportunistic” buyers of the market have decreased.

One official, who says that buyers who want to buy for normal use and who want to buy and sell due to foreign currency fluctuation are easily understood, says that the number of people who come with this demand decreases as the exchange rate increases. keep stable:

“Any company or car rental company, etc. We can understand that when an unemployed person comes with an order to buy 3 to 5 cars, he will manipulate market prices by negotiating. Who in this economy can buy 3-5 cars just for their own use?”

“As they want to get rid of them immediately after the purchase, it is not in their interest to keep the exchange rate stable. That’s why their numbers dwindled.”

‘The period until the election will be very difficult for automakers’

Stating that the SCT system in Turkey should be taxed according to emission volume, not engine power, approaching world standards, the official argues that a comprehensive plan should be presented for this.

Saying that the automotive industry directly affects 500,000 people in Turkey, the official considers Kılıçdaroğlu’s statement “irresponsible”:

“The explanation is very poor, the details of the plan are unclear. In its current state, there is nothing to talk about because it does not have the resources to meet the reduction of SCT in Turkey.

“If you take actions that stop the market with a single statement, a large industry that affects 500,000 people will be affected by it.

“There is an expectation of a reduction in the excise tax and, therefore, the market slows down. When the economy is already bad, these explanations that will stop the market will be salty. So the period leading up to the election will be very difficult for automakers.”

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