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Auto Dealers Fear 40% Sales Slump From Vat

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian auto dealers fear Value-Added Tax’s (VAT) implementation will cause the sector to follow its Caribbean counterparts into a 30-40 per cent sales decline, with one arguing that the proposed tax was “not the right fit for our economy”.

Fred Albury, the Bahamas Motor Dealers Association’s (BMDA) president, told Tribune Business that its members had “big concerns” over the Government’s proposed 15 per cent VAT given how the tax had impacted their counterparts in other Caribbean countries.

Apart from the likely impact on new and used car sales, Mr Albury acknowledged that another concern - as had happened in St Lucia and Grenada - was that a 15 per cent VAT on auto service and parts bills would drive consumers to ‘bush mechanics’ and firms that did not have to register to pay the tax.

Suggesting that the Bahamas follow the lead established by Turks & Caicos and instead implement a sales tax, Mr Albury urged this nation not to “go down the hell hole” that other VAT-adopting Caribbean countries had fallen into.

“If you look at what happened in St Lucia and Grenada, and places where they’ve introduced VAT, it’s had a negative effect with sales down 30-40 per cent,” Mr Albury told Tribune Business.

Such a drop in auto sales in the Bahamas post-July 1, 2014, could have a calamitous effect on a sector that is still 50 per cent off its pre-recession high, likely sparking reduced working hours and lay-offs.

Mr Albury, the Auto Mall, Executive Motors and Omega Motors head, disclosed that VAT’s impending implementation was already having an impact on buyer behaviour.

Given that VAT’s introduction is supposed to coincide with the reduction of import duties and Excise Taxes, he explained that many purchasers were ‘holding off’ in the belief (possibly mistaken) that auto prices would fall due to cuts in the industry’s current tax structure, which ranges from 65-85 per cent.

“I’ve already got customers, a rental car business, saying: ‘Why buy any vehicles now at 65 per cent, 75 per cent, 85 per cent? When VAT comes along, the duty will be reduced. I’ll wait’. It’s already having a ‘wait and see’ effect for business out there,” Mr Albury said.

And he confirmed to Tribune Business that this newspaper was “absolutely correct” in its understanding that VAT’s introduction in St Lucia and elsewhere had resulted in auto owners there taking their vehicles to ‘bush mechanics’ and small operators in a bid to escape VAT on services and parts.

“That would be a big concern,” Mr Albury acknowledged. “If they go to a one-man operation, and not have to pay VAT rather than go to an authorised dealer, we will have to start cutting heads. It will have a spin-off, trickle down effect.”

He expressed hope, though, that this would be “offset” by the quality he and other new car dealers offered.

“Probably the customers we don’t want will go that way,” he added. “We’ve put a lot of money into technology and training, and a lot of vehicles have to go back to the dealer for diagnosis.”

Noting that he had just brought in a $3 million spare parts shipment, with a likely duty rate of 55 per cent, Mr Albury said his “biggest concern” was the timing of VAT implementation, and the impact on unsold stock he had already paid existing tariff rates on.

“Do I have to eat the portion of duty that I’ve already paid,” Mr Albury asked. The Government, in fairness, has talked about addressing this issue via the use of bonded warehouses or companies managing their existing inventory such that they ‘run it down’ before VAT implementation.

Mr Albury said the BMDA had already had one meeting with the Ministry of Finance on VAT, and was now drawing up “a list of concerns” in response to the latter’s request. A further meeting is supposed to be held.

“Right now, we’re picking straws out of the sky,” the BMDA president said on VAT specifics, due to the fact that the legislation and accompanying regulations have yet to be published.

“I know the Government has a thirst for revenue, but the VAT tax is not the right fit for our economy,” Mr Albury told Tribune Business. “It’s a service-oriented economy. If it was an economy where we produced manufactured goods, maybe.

“I hate to predict doom and gloom, but I don’t think VAT is a good fit for our type of economy, and I don’t see why we have to rush into something that has destroyed other economies.

“It [VAT} sounds good on paper, but when you factor in the underground economy..... The Bahamas is already known as a country of pirates, and they will find a way to get around paying VAT,” Mr Albury added.

“They might catch a few, but when people start bartering services and goods, it’s going to be like an organised underground market out there.”

Mr Albury said both the Cayman Islands and Turks & Caicos had successfully resisted the implementation of VAT, and the latter had instead implemented a sales tax “geared towards tourism” and the industries it hosted.

“That might be the best way of doing this,” Mr Albury said, backing a sales tax for the Bahamas.

He added that the Turks & Caicos had witnessed a major public education campaign on what VAT meant for them, complete with bumper stickers, t-shirts and petitions, and 
“that might possibly have to happen here”.

Mr Albury noted that countries that had tried to increase their VAT rates, such as Barbados, the Dominican Republic and the UK, had either suffered a fall in revenues (driving consumers to the underground economy) or experienced such public pressure that they ultimately reversed course.

Calling on the Bahamas not to follow the advice of the International Monetary Fund (IMF) and other multilateral institutions like sheep, Mr Albury told Tribune Business: “We’re one of the jewels of the Caribbean.

“Why should we aspire to be like the others going down into the hell hole, the sceptic tank? Let’s do something different, and not be dictated to be the WTO and IMF.... Is it worth joining the WTO for what the consumer is going through?”

Urging the Government to work with the private sector to find other, non-VAT, ways to raise revenues while also cutting spending, Mr Albury said: “VAT will have a negative effect on us for a couple of years.

“We were just starting to come out of recession, and if we will be hit by VAT a lot of [business] places will not survive.”

Comments

jerzy 6 years, 2 months ago

I couldn't agree more. The reason that VAT is being proposed is that it is IMF policy. The IMF have attached the condition of VAT in order to obtain additional borrowing.

If the Bahamian government want to borrow more money, and it appears that they do, they have to comply.

There are serious doubts as to whether it would be wise to borrow more money; the Bahamas has one of the lowest debt to GDP levels in the region. Borrowing will place the Bahamas in a similar position to Barbados, SKN, Jamaica, St Lucia and so on. All have introduced VAT at the behest of the IMF and all have dangerously high public debt.

VAT is highly unsuitable for the Bahamas due to its high administration costs, and lack of home production and exports. Other tax instruments are for more effective than VAT for this type of economy.

The Bahamas does have significant problems because it collects such a low revenue to GDP. There are significant question that need to be asked to establish why the revenue level is so low. There is no doubt that the level of tax revenue to GDP should be increased from less than 20% to nearer 25% but VAT is the worst way of achieving this.

I was closely involved in the campaign against VAT in the Turks & Caicos. I hope all Bahamians fully realise the inherent dangers of implementing VAT. It would be disastrous.

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John 6 years, 2 months ago

A few years ago scientists determined that they could cause cows to grow faster by feeding them the remains of slaughtered cows, ground up and mixed up in the cows' regular food..And so skin, intestines and bones of slaughtered cows were introduced to growing cows diet. AND at first it did cause the cows to grow faster but it also caused the cows brain to malfunction, in a form that was called "mad cow disease". The brain began feeding on itself, to say it simply. Not only were cows not designed to eat meat, but God did not create them to feed on their own kind. With this VAT plan, it appears that the same set of people who are already overburdened with taxes are going to be taxed even more. This can easily become a form of 'tax canabilism" where rather than generating new revenue to tax, government consumes its sources of revenue by over taxation. If persons feel their tax burden is too high the will become disillusioned and may refuse to work.

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