Already fearing an eight per cent profit cut post-value-added tax (VAT), President of the Bahamas Motor Dealers Association Fred Albury said big questions remain unanswered regarding key factors that could affect the capacity of car dealers to make competitive sales under the new tax regime.
Fred Albury, owner of Executive Motors, said one of the major concerns he has is how used car dealers will compete with those unregistered dealers who are importing cars to "sell on the side of the road" without VAT added.
"I've posed a question to the Ministry of Finance with regard to how the sale of used vehicles will be controlled, because otherwise it will have a bad effect on the sales of legitimate businesses and the VAT will not be getting passed on to the government."
Another concern is whether in the case of car sales that involve the trade-in of a used vehicle as equity, if the purchaser will have to pay VAT on the full value of the car or only on the portion for which they have paid cash.
Albury described the treatment of this issue as one which counterparts in the Caribbean have indicated to be a "very critical area which could have a big impact on new car sales".
"The question is if there will be double-dipping. If the customer buys the vehicle and pays the VAT on the full price of the vehicle, then the dealer should not have to collect/pay VAT on the sale of the used vehicle (which they traded in).
"Do they expect us to sell the trade-in and charge VAT on that when VAT was paid on the full amount of the new car purchase?
"In essence it's one sale and you are getting cash as a part payment and a trade-in to make up the rest, but you have to dispose of the trade-in to get the balance of your transaction."
Albury said that in conversations with dealerships in the region, different governments have dealt with the point in a variety of ways under their VAT regimes, some making allowances while others require the "double" VAT payment.
"In those cases that had to pay it twice, their sales went down considerably, so the spin-off effect is our sales would go down, we would import less, and the government gets less" if VAT is charged on both the new car sale and the sale of the traded-in vehicle," said Albury.
Meanwhile, Albury said his company has concerns about the treatment of vehicles being imported by his company into its Freeport facility, and whether they will have VAT applied to them at the point of importation, or the point of sale, given that some of the cars will be sold as exports.
Under the VAT legislation and regulations, companies can sell goods with a zero rate of VAT if it can be proven that they are being exported to buyers abroad who are not subject to our regime. It is not clear whether the sale of a car abroad would entitle the vendor to reclaim VAT paid on its import, if that had occurred.
"That's a big issue for us, because in some cases we are expecting to sell cars to Turks and Caicos and other Caribbean markets from Freeport."
However, Albury said one key question has been answered - whether the dealership would be forced to charge VAT on items sold as part of their warranty responsibilities to customers.
"They clarified that we will not have to add VAT to warranty items," he said.
Albury said individual companies and sectors need more time to get answers to these sorts of questions that will arise with respect to their operations.
There remain many points which are unclear with respect to how VAT will impact individual sectors' bottom lines and operations, despite the public release of the draft VAT legislation and regulations.
"My concern is whether there is time to go through these little queries so that we can be comfortable with this, rather than rushing this and putting this upon us and dealing with it after the fact."
He reiterated support for a payroll tax as an alternative to VAT, which would be easier to administer and less prone to evasion.
"It could so easily be administered by the National Insurance Board. The gross annual salary of the country is about $3.5 - 4bn and if you took 5 per cent of that you'd be generating a lot of revenue."

Click here to read more at The Nassau Guardian