Motor dealers: Tax measures will cause 'major realignment'

Mon, Apr 14th 2014, 12:34 PM

The Bahamas Motor Dealers Association (BMDA) will launch a campaign this week in which it warns that new tax measures could force a "major realignment" in the industry, including staff cuts, facility downsizing and the shelving of potential new investments.

Arguing that new tax measures could see at least an additional $2,300 added to the cost of the cheapest new vehicle, the BMDA suggests in a new media push - via advertisements placed in major newspapers - that these higher prices will cause sales losses that will hurt overall government revenue.

"For the most part, BMDA companies have held the line on lay-offs and downsizing in the hope the economy would improve, but new tax policies are expected to have a cumulative and significant negative impact on the industry's financial health," the association states.

It is calling for the government to ensure that if implemented, value-added tax (VAT) would only be charged on vehicles at the border, and not at the point of sale. It warns that if customers are paying VAT on vehicle sales, this will encourage the purchasing of vehicles abroad, not only hurting the local industry but exposing the buyer to losing warranty protection.

The BMDA points to business license fee increases and VAT in particular - both the rate and challenges with how it will be administered - when it argues in a new media campaign that these policies are "poised to deal a heavy blow to the industry" which is already experiencing a major downturn in sales in comparison to a 2007 peak.

Comparing the current situation in the industry to what existed in 2007, prior to the 2008 financial crash and economic downturn, the BMDA said that in 2007, 2,200 units were sold by the industry, in comparison to 4,200 new cars and trucks in 2012.

VAT, they argue, could increase the cost of automobile parts by eight percent, vehicles by 10 percent, and the cost of service labor by 15 percent, further reducing sales.

With the application of VAT in a situation where all of its products are price-controlled, motor dealers will be forced to "necessarily" cut their markup on all products by "up to 10 percent", hitting their bottom line.

Turning to issues with implementation, the BMDA claims it has sought answers on tax treatment from the government, but has received none. Specifically, the industry is raising the alarm over the potential impact on its bottom line of having VAT applied to pre-existing, slow-to-sell automobile parts which they are required by manufacturers to have on hand.

With higher excise taxes having been paid for these in the pre-VAT period, before the border taxes fell under the VAT regime, the BMDA is forecasting members having to "write off significant sums" if they are then expected to sell these parts with VAT applied on top of this higher cost.

Business license fees now calculated at 1.25 percent of gross turnover, without regard to profit, also threaten to undermine the industry's viability, suggests the BMDA.

Rick Lowe, operations manager at the Nassau Motor Company, and a BMDA member, said of the decision to advertise the industry's concerns: "We hope this will help the government see this from the business person's point of view and encourage them to respond.

"The industry needs details on how the technical questions we've raised will be addressed, and we are concerned about the wider implications for our industry as a result of all the various taxes and the continual deepening of them, as outlined, and this requires an adjustment to the tax policies and other regulations applied to our industry. VAT will only increase the tax burden and more than likely force downsizing by some in the automotive sector."

The government has set a deadline of July 1 to implement VAT. Last month, Prime Minister Perry Christie said that a plan to bring it in at a rate of 15 percent has been abandoned, but no further specifics have been revealed. Christie has also indicated willingness to leave a final decision on VAT's implementation until after he has seen the results of several studies, which are both public and private sector driven, on the likely impact of VAT and alternative tax and spending measures on the economy.

Speaking to The Nassau Guardian last week, Financial Secretary John Rolle said that the public should not expect "wholesale changes" to the government's previously announced tax plans.

Click here to read more at The Nassau Guardian

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