GOVERNMENT’S onerous tax regime has forced Jamaican consumers to fork out exorbitant amounts of money for motor vehicle purchases.
Indeed, local car prices are amongst the highest in the region and industry experts place the blame squarely at the feet of Government.
“The Government is just making too much money on vehicles,” laments Kent LaCroix, president of the Automobile Dealers Association, the umbrella group for dealers of new cars.
“The thing is, at the end of the day, it is the consumers that are the ones being hurt because they are more and more unable to pay these high duties,” he argues.
The state charges a burdensome 63.5 per cent to 194 per cent of the Cost, Insurance and Freight (CIF) value of motor vehicles being shipped into the country. These taxes are a complicated mix of a Custom Duty, Special Consumption Tax (SCT), General Consumption Tax (GCT), Environmental Levy (ENVL), Custom User Fee (CUF) and other charges.
In fact, the 40 per cent custom duties imposed by the Jamaican government is the highest in the region, says Jamaica Used Car Dealers Association (JUCDA) president Lynvalle Hamilton. The dismal consequence of which, Hamilton adds, is that car prices are beyond the reach of the average Jamaican consumer.
“Persons are moving from car lot to car lot trying to get a deal (on a car) and they are not going to find it because cars are unreasonably expensive. This is not as a result of the dealers putting any high mark-up on the vehicles, it’s just the Government being inconsiderate,” Hamilton tells Sunday Finance.
According to LaCroix, dealers only make a modest 10 to 12 per cent margin on motor vehicles.
Against that background, look below at how the cost of a 1.5 litre engine (1500 cc) motor car with a CIF value of $1 million is more than doubled by the time it reaches point of sale to you — the customer.
(NB Custom Duty, Environmental Levy and Custom User Fee are all calculated as a percentage of CIF value. SCT is calculated as a percentage of: CIF value plus Custom Duty. GCT is calculated as a percentage of: CIF Value plus Government charges plus dealer mark-up)
So, in this case, the Government collects almost a half of the $2.3 million paid by the customer (see illustration), whose spending power is already significantly weakened because a fourth of his/her salary is taxed. The dealer, on the other hand, is left with little profit when one factors that the mark-up covers expenses for staff, utilities, rent, supplies, and other operating costs.
Interestingly too is that this costing is at the lower end of Government’s tax scale. As the engine size of the vehicle increases, say to 2.4 litres (2400cc), SCT charges are also increased and hence the cost disparity between CIF value and sale price becomes even more astonishing.
However, industry trends reveal that local consumers are becoming increasingly unable to afford motor cars at these high prices, supporting Hamilton’s earlier assessment. Sales reports from the two major segments — new and used cars — of the industry paint a daunting picture.
LaCroix says that at just over 3,000 new car sales in 2010, the subsector’s performance remained relatively flat in comparison to 2009. However, the rent-a-car market represented a “significant” portion of the vehicles purchased in 2010.
“So, what you’re talking about is that a significant less number of vehicles were sold to the (regular) consumer,” notes LaCroix.
It gets worse in the used car segment. According to Hamilton, sales have declined by up to 50 per cent this year compared to 2009.
“The vehicles are not being sold because the consumers just can’t afford them…earlier on we had suggested that it would be about 7,000 (sales) but I’m inclined to believe it will be much less than that — nearly a 45 to 50 per cent decline,” says the JUCDA president, who is also the managing director of Auto Channel.
Against this background, the industry insiders say that Government’s tax regime is killing the local automobile sector and is in fact depriving the state coffers of additional revenues.
“At the end of the day, the more people stop buying is the less money that will go into the coffers…You can see that the number of vehicles that are being imported is getting lower and lower each year,” argues LaCroix.
Hamilton adds that he is “…absolutely sure if the duties were reduced by 10 to 15 per cent, the government would collect more money because cars would be more affordable.”
But what do you think? Tell us how much taxes you think Government should impose on motor vehicles. Have your say by commenting below.
