The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Two Bahamian auto dealers yesterday predicted that new car sales would fall be 30 per cent in the aftermath of Value-Added Tax’s (VAT) implementation, with the industry suggesting that their businesses become ‘duty free zones’.

Ben Albury told Tribune Business that the Bahamas Motor Dealers Association (BMDA) had proposed that Excise Tax be paid once a vehicle was sold and left a dealership’s lot, rather than at the border.

While this was not result in any increased profits to a auto dealers, the Bahamas Bus and Truck sales manager said it would boost business cash flows by ensuring capital was not tied up in inventories for as long as one-two years.

Disclosing that the BMDA proposal to the Government had been based on what was happening elsewhere in the region, Mr Albury said: “We’ve proposed to them the model used in Barbados.

“Barbados has a duty-free model, where duty is paid once the vehicle is sold and not at the border. It does not make us more money, but it definitely helps cash flow.”

The proposal would operate in a similar manner to the Freeport’s bonded or duty-free area, where taxes are only incurred once a produce leaves the Port area and is shipped to another part of the Bahamas.

Meanwhile, both Mr Albury and Rick Lowe, director/operations manager at Nassau Motor Company (NMC), separately forecast to Tribune Business that new auto sales would drop by 30 per cent in 2015 post-VAT implementation.

Mr Lowe said this forecast was based on the experience of auto dealerships in Caribbean territories where VAT was introduced, as sales had dropped by 30 per cent or more.

“If we have a 30 per cent drop in new car sales, there’s going to be some serious fall out from that,” Mr Lowe told Tribune Business.

Suggesting that there was “no doubt’ industry redundancies would follow, he added: “How can we survive? The industry is still struggling for the levels we achieved in 2006-2007.

“We’ve not even regained or recouped those sales. If there’s another 30 per cent hit, it’s not going to be pretty.”

Mr Albury added: “In the first six months [post-VAT] we would see a 30 per cent decline. As time goes on and people become accustomed to paying it, we will see sales level off.”

Mr Lowe said the Government’s failure to reduce the auto industry’s already high Excise Tax rates, in order to mitigate VAT’s impact or ensure the effect was ‘neutral’, had been disappointing given that the sector had received hints cuts might be forthcoming.

Suggesting that the absence of any Excise Tax cut, together with VAT at 7.5 per cent, would have “a devastating impact” on the auto industry, Mr Albury expressed unhappiness that Michael Halkitis, minister of state for finance, had failed to respond to the BMDA’s three attempts to meet with him.

The Bahamas Bus and Truck executive said VAT would result in industry prices increasing and prices dropping, the impact exacerbated by price control, with auto ownership pushed further out of “the average man’s” reach.

Mr Albury said the new tax would also spark an increase in the importation of “junk and salvaged vehicles”, along with second hand autos that were not as fuel efficient or environmentally friendly.

“This is an industry they’ve wrung out every time they need more revenue,” he told Tribune Business. “They think they can come to this industry and tax it, and tax it, and tax it. We’re taking the brunt of it.

“I’ve had a meeting with my principals today. Are we going to have to reduce the size of the business, lay people off, reduce salaries? Something has to give somewhere.”

New auto sales are still 50 per cent below levels achieved in the industry’s 2007 banner year, and Mr Albury said: “They’ve [the Government] acknowledged that we’re probably the largest contributor to the Treasury, but they need to protect that industry. At the end of the day, the public purse is going to suffer.

“As it stands now today, are we going to stay in business?.... I know my owners do not want to continue to lose money. They’re not going to do it. They’re seeing the business and profits they’ve accumulated over the years going down the tube.”

Mr Albury said Bahamas Bus and Truck and other auto dealers had shown their audited financial statements to Ryan Pinder, minister of financial services, and government officials to drive home just how precarious the sector’s financial position is.

“The amount of capital it takes to turn over a business like this, you’d make more money putting it in the bank and earn interest on it, rather than take the gambit and trouble of employing people in a business this size,” Mr Albury told Tribune Business.

While acknowledging that the Government’s revised VAT appeared to have taken on board much of the sound advice it had received, Mr Albury added: “I still don’t think VAT is the best way.

“I think it is through cutting costs, controlling expenditure and collecting taxes due to them - their only collecting 30-40 per cent of the taxes out there.”

The Bahamas Bus and Truck executive said real property taxes were supposed to the easiest to collect, as the assets were immovable and easy to assess, but the Government had allowed a $550 million liability to build up.

This, Mr Albury said, inspired little confidence that the Government would collect what was due to it under VAT.