By Neil Hartnell

Tribune Business Editor

nhartnell@tribunemedia.net

Auto dealers yesterday said the industry is poised to “pick up steam” as a result of tax cuts that will give Bahamian consumers “more choice and better prices” from July 1.

Fred Albury, the Bahamas Motor Dealers Association’s (BMDA) president, hailed the Government’s decision to expand the number of dealers and vehicles that will benefit from lower excise duty rates as a result of reforms unveiled yesterday with the 2019-2020 budget.

KP Turnquest, deputy prime minister, disclosed that new vehicles valued at $50,000 or less, and with an engine size between 1.5 litres and two litres, will enjoy a 20 percentage point drop in their excise tax rate from the existing 65 percent to 45 percent.

He added that “new vehicles” will be classified as those with less than 200 miles on the odometer, joking that Bahamians would “still be able to drive from Orlando to Miami” and enjoy the benefits of the tax rate reduction.

Praising the government for meeting the auto industry “half way” on its request for further tax relief, Mr Albury said that while yesterday’s rate cut was not as steep as the 40 percentage drop afforded to vehicles with an engine size of 1.5 litres in last year’s budget, it still represented a win-win for consumers, dealers and the Public Treasury.

“Any move from where it was is positive, and I think it will help the industry to pick up some steam,” he told Tribune Business. “It’s going to help the Government’s revenue compared to what they’re getting from these cheap, disposable used cars, which is a pittance, compared to what they will get from something of this nature.

“If it increases turnover by 10 percent it will help them, and it helps us out as well. The Government is going to get more revenue if we sell more vehicles, and consumers are going to benefit. It’s going to bring down prices on a wide range of products for different brands. Consumers have more choice and better prices going as of July 1.”

Mr Albury said yesterday’s move by the Government, which was again designed to make smaller, environmentally friendly, and more fuel efficient vehicles more affordable, will also spread the Excise Tax relief more equitably. Many auto dealers missed out on the benefits from last year’s cut because their product is in the 1.6 litre to two litre range that was addressed yesterday.

“Now all of the dealers will have some vehicles at reduced rates to be offered to consumers,” the BMDA chief added. “There’s a lot of product in the range of 1.6 to two litres and, as manufacturers make a big shift where they’re downsizing engines for everything, there’s going to be more and more product becoming available at two litres and less.

“Ford has a lot of product at 1.5 to two litres only... Tyreflex/Star Motors, some of their Subaru product is at 1.7 to 1.8 litres, and a few of their Mercedes Benz can be here with two litre engines. All of the dealers now have a horse in the race.”

Mr Albury said the Government’s approval of bonded facilities, where Excise Tax only becomes payable once a vehicle is removed, would likely ensure dealers do not experience the problems associated with last year’s reduction this time around.

With no such facilities or transition period, dealers were forced to “eat” the 65 percent Excise Tax paid on vehicles with engines of 1.5 litres or less that were already in stock once the rate dropped to 25 percent. This represented a six-figure write-off for some companies.

“I would like to think that the dealers that have purchased at these engine sizes (1.5 litres to two litres) had those in bond in anticipation of something happening out there,” Mr Albury added. “We did and prepared for it. I cannot speak for everybody but, like the Boy Scouts said: ‘Be prepared’. We sort of anticipated it.”

Mr Turnquest yesterday also announced that the Government will “harmonise” the tax rates for all hybrid and electrical vehicles valued at up to $50,000 at 10 percent. However, he added that this rate will “sunset” in five years’ time, with the hybrid and electrical car rates moving “closer” to those for other small cars.

Mr Albury described the five years as “a very reasonable period of time”, adding that other countries had inserted similar “sunset clauses” when dealing with hybrid and electrical vehicles. 

“By then hybrids would be mass produced, and the cost of production would have been reduced,” he added. “There’s new technology coming on stream all the time now, so in five years from now - by 2025 - if you watch what’s happening and the markets in Europe, there’s going to be a lot of change in the automotive industry with new products, new technology.

“It’s a new industrial age out there. Toyota, Honda have a fuel cell vehicle that runs on hydrogen. As these technologies come on stream, and once we have the refuelling infrastructure in place, we’ll have real zero emission vehicles out there. The hybrids and electrical vehicles are stepping stones to get to zero emission vehicles.”

Rick Lowe, the BMDA’s secretary, told Tribune Business that the Government had likely inserted the five-year “sunset clause” to protect its revenue earnings, having realised that they would decline as hybrid and electrical vehicle sales increased.

He added that the Excise Tax rate cut for vehicles with engine sizes between 1.5 to two litres would “help tremendously”, and added: “I think it’s going to have a positive impact, both for the Treasury and industry. Hopefully we’ll be able to improve sales so that their [the Government’s] revenue increases.”

Mr Albury, meanwhile, said: “I think the big concern going forward in the auto industry now will be our accession to the WTO, and how we transition now from where we are with the import taxes to lower taxes on spare parts.”