The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government yesterday moved to “lighten the Value-Added Tax (VAT) blow” for the auto industry, telling dealers it would narrow their Excise Tax base and permit the ‘deferred’ payment of VAT due at the border.

Fred Albury, the Bahamas Motor Dealers Association’s (BMDA) president, told Tribune Business that top Ministry of Finance officials informed the sector they would allow Excise Taxes to be calculated based on Freight on Board (FOB), as opposed to the currently used Cost, Insurance Freight (CIF) standard.

This, Mr Albury explained, would eliminate freight and insurance costs from the Excise Tax base, ensuring it was only assessed on the cost of imported vehicles and parts. Such a measure is set to cost the Government around $40 million,

He added that this could potentially save Bahamian auto dealers a four-figure sum per imported vehicle, thus helping to compensate for the Government’s decision not to lower the sector’s Excise Tax rates to offset the 7.5 per cent VAT.

And it seems the Christie administration is not finished there, as Mr Albury said the auto industry was informed yesterday that it would be allowed to ‘defer’ the payment of VAT at the border (importation point).

While the amount of VAT due on an imported vehicle would be calculated then, auto dealers would only have to pay it - along with the 7.5 per cent levy on the retail price - when the vehicle was sold.

The BMDA president said John Rolle, the Ministry of Finance’s financial secretary, and his deputy, Simon Wilson, informed the sector this would be allowed in the initial months post-VAT implementation to ease the sector’s transition to the new structure.

“Our understanding so far is there will be no adjustment on the rates of Excise Tax, but there might be a change in the way they calculate the tax,” Mr Albury told Tribune Business.

“The tax is based now on CIF, and they’re looking at changing that to FOB - Freight on Board value - so we do not pay tax on insurance and freight.

“All in all, it was positive, especially the way that Excise Taxes will be calculated. They’re [the Government] giving that up, and the cost is somewhere in the area of $40 million that they’re giving up on Excise Taxes by going from CIF to FOB.”

Mr Albury said he thought the Government was examining the FOB calculation rate “across the board” for all industries and businesses, although that could not be confirmed last night.

Suggesting that the Government was adopting this approach for industries that did not receive VAT-offsetting tariff adjustments, Mr Albury said the FOB method would create “a little bit of savings” for his Auto Mall business and its Toyota, Hyundai and BMW brands.

“Freight is hefty, especially on goods coming from Japan,” he added. “For a vehicle, freight and insurance are around $2,000, so that would be about a $1,500 per vehicle saving.”

Mr Albury said spare parts would also benefit. Customers requiring the emergency importation of a $500 spare part, he added, often paid $2,000 in freight and insurance costs. But, under the FOB method, they would only be taxed on the $500 - not the $2,500.

The BMDA president then told Tribune Business that the Government had made another VAT-related concession to the auto industry to ease the January 1, 2015, transition.

“The VAT we’re expected to pay at the border is going to be deferred initially to allow us to get going,” he said. “VAT will be calculated at the border, but they will allow us to pay it at the point of sale.

“That and the FOB were the two big things. I think they’re doing that because there’s no reforms on Excise Tax. I think they’re doing that to lighten the blow.”

Mr Albury described 2015 as “a mixed scenario” for the auto industry, after he and other dealers, together with their financial teams and auditors, emerged from yesterday’s meeting with the Ministry of Finance’s top brass.

“They want us to try and register early so they know what they’re dealing with, and as a group keep us better informed, and get us up and running in the proper manner,” he added.

“Initially, they expect there’ll be mistakes and errors. They’ll [the Ministry of Finance and VAT Department] be working with us, and our auditors will be working with the Ministry of Finance to ensure the transition is as smooth as possible.

“They’ll try to keep us educated as much as possible. Getting the flow of information out to us takes away the mystery and the speculation, and number of questions were answered today.”

For example, Mr Albury said written-down obsolete parts, whose value had decreased from $300 to $50, would have VAT applied on the latter figure, not the higher value.

Rick Lowe, Nassau Motor Company’s (NMC) operations manager and a director, told Tribune Business that the FOB and ‘deferred border VAT’ measures might aid the industry’s cash flow.

On the latter, he said: “It’s almost like a flat sales tax, which is probably what they should have implemented in the first place.”

Disclosing that pre-existing inventory would be subject to 7.5 per cent VAT on the retail price, Mr Lowe added of the meeting: “They talked about possibilities down the line, which I think is irrelevant, as VAT is not going to yield what they think it should.

“It [VAT] certainly could have been a lot more complicated. They maybe have been listening, and could have been taking the course of least resistance with us, who knows?”

Mr Lowe said the industry also raised queries about price controls and the fact no new vehicle fell within the ‘$10,000 and under’ 65 per cent Excise Tax band, calling for this to be raised.

“They [Messrs Rolle and Wilson] said they shared our view on price controls and many of those issues, but there’s also the consideration of the political directorate,” Mr Lowe said.

But no definitive answers were given on the non-VAT questions.