The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Tax Coalition will lobby the Government for a 5-7.5 percentage point reduction in auto industry duty rates, its co-chair arguing: “We can’t afford for that industry to fall apart.”

Robert Myers told Tribune Business that the Bahamas Motor Dealers Association’s (BMDA) call for a cut in the sector’s already-steep Excise Tax rates was “warranted” to ensure Value-Added Tax’s (VAT) implementation had a ‘neutral’ price impact.

“The automotive group is obviously disappointed,” the Coalition for Responsible Taxation’s co-leader said. “We’ll be lobbying for them to get some concessions on duty.

“We understand their plea, and think it’s warranted. We need to see some relief and neutrality in that area - just a reduction in the rate. We can’t afford for that industry to fall apart.”

Pointing to dealerships such as Friendly Ford, Nassau Motor Company and Quality Auto, Mr Myers said BMDA members provided a vital service to the Bahamian public by meeting their transportation needs.

“We need good quality service, parts and viable, quality companies,” Mr Myers told Tribune Business. “All these companies provide quality service to the public. We need to make sure these guys stay in business.”

The auto industry is currently subject to Excise Tax rates between 65-85 per cent, but despite being one of the Public Treasury’s highest-yielding and most reliable revenue contributors, it was not included among the 100 tariff lines earmarked by the Government for pre-VAT cuts.

Rick Lowe, Nassau Motor Company’s (NMC) operations manager/director, told Tribune Business that the sector had been informed “through the grapevine” via non-official sources that the Government had been considering cuts to the auto industry’s tax rates but none were forthcoming.

Both he and Ben Albury, Bahamas Bus & Truck’s sales manager, predicted in Tribune Business on Friday that auto sales were likely to fall 30 per cent in the immediate months following VAT’s January 1 introduction.

They based their assessments on what had happened in other Caribbean nations post-VAT implementation, plus the fact that in the absence of any compensating Excise Tax cuts the cost of an already-expensive product would rise further.

This, Messrs Lowe and Albury said, would reduce demand and auto sales. Revenues and profits would subsequently fall further in a sector where sales remain 50 per cent below peak pre-recession levels, making redundancies and business downsizing a real possibility.

Mr Myers told Tribune Business that the Coalition would, on the BMDA’s behalf, seek a “neutrality” position via a 5-7.5 percentage point cut in Excise Tax rates. This, he added, would ensure no consumer price increases post-VAT.

While auto dealers will be able to ‘net off’ or reclaim the 7.5 per cent VAT they pay on a vehicle’s importation at the border, the consumer will still have to pay the levy imposed on the sales price. And, based on the draft VAT Bill, it appears that the new tax will be levied on a product’s price and import duty sum combined, not just the price.

Mr Myers, meanwhile, estimated that the private sector needed around a month to complete its considered feedback on the new VAT Bill.

Although the Government plans to start debating the legislation in Parliament within the next two weeks, the Coalition co-chair said it was unlikely to be passed “overnight”, thus giving the business community enough time to lobby for changes.

Expressing hope that this process could be concluded within the next six to eight weeks, Mr Myers told Tribune Business that while the January 1 implementation date remained a “tough” target to hit, the Government’s decision to opt for a “simpler” VAT had made it more achievable.

“It’s now a matter of tightening up a few bits and pieces here and there, and then looking at the regulations,” he said. “They [the Government] have said they’re going to debate it and get feedback from the private sector.

“We need at least a month to make sure that happens, and in six to eight weeks, when amendments are needed, it could be re-tabled in the House and hopefully improved.”

While the Government’s timetable seemingly indicates the VAT Bill and accompanying regulations may be passed before the private sector’s feedback is complete, Mr Myers suggested this was unlikely.

“Is it going to get passed in two weeks? I don’t see that,” he told this newspaper. “I think they’re going to have enough back and forth within the House that it will take them more than a couple of weeks to figure it out plus any changes. It’s a process; it just doesn’t happen overnight.”

The Coalition for Responsible Taxation has already been urging the private sector to read the revised VAT package and submit any concerns, and is seeking to arrange a meeting with the Ministry of Finance within the coming weeks.

These concerns will then be submitted to the Government in the hope that, via dialogue with the Coalition, they can be addressed.

Mr Myers, though, warned that the Coalition may take the view that some concerns “aren’t worth arguing”, especially if they appear frivolous. Those that fell into this category would be discussed internally by the private sector group to determine if they were worth submitting to government.

“You never know what thoughts are going to come at you,” he said, acknowledging the “urgency” now surrounding VAT and wider fiscal reform.

Asked by Tribune Business whether the Government’s January 1 target date was still achievable, Mr Myers said it remained “tough” but possible.

“It’s so much more viable than it was because of it’s simplified manner,” he added. “These discussions between the Government, private sector and New Zealand consultants will have made it considerably easier to administer.

“A simple tax with fewer exemptions makes it [VAT implementation] easier to achieve faster. It’s possible, but it’s hard to say.”

“Can I do it in that time in my businesses?” asked Mr Myers rhetorically. “Yes, but my businesses might be more sophisticated than some. Some people don’t run accounts, others don’t have any accounts. Do they have the ability to get their heads around structured accounts? No idea.

“It is going to be challenging for some people, as they do not have the accounts or structure to run structured accounts.”

The Coalition co-chair said Bahamian companies with an annual turnover exceeding $5 million, and who were expected to generate the bulk of VAT revenues, should - like his own firms - be able to prepare within four months.

But Mr Myers, who has extensive construction interests, conceded that labour costs alone in this sector were likely to increase by 3-4 per cent as a result of VAT.

While duty reductions on key construction materials would likely mitigate the new tax’s impact, he expressed concern about adding the 7.5 per cent levy to pre-existing construction contracts come January 1, 2015.

“I have some issues with regard to contractual obligations that we’re going to have to deal with,” Mr Myers said. “We have contracts that we’ve signed that don’t have any VAT included in them.

“We’re in construction on those contracts. It’s not my tax; the Government makes the law. In other words, it is our client’s responsibility to follow the law. If the law changes on January 1, they’ll be paying taxes on those invoices from that date.

“There are some issues there that are not going to make some of our customers very happy. It’s not us doing it. I don’t control the law; I just follow and adhere to it. But that does not make it an easy pill to swallow, as customer contracts go up 7.5 per cent.

“That’s a big jump for some people. There’s doubt there’s going to be an increase in construction costs.”

Still, Mr Myers said the efforts by the Coalition and others had resulted in the Government opting for a VAT structure that was more palatable.

“I think collectively we’ve come up with a fair and balanced approach,” he told Tribune Business. “Not everybody will like that, but we’ve done it.”