The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian auto dealers are pushing for price control margin increases of up to 15 percentage points, warning that these are vital to their survival now Value-Added Tax (VAT) has been implemented.

The industry’s position, set out in the Coalition for Responsible Taxation’s list of unresolved VAT issues, calls for the Government to increase the price control mark-up on new vehicles by two percentage points - from 25 per cent to 27 per cent.

And the auto industry also wants the mark-up limit on parts increased by 15 percentage points - from 75 per cent to 90 per cent - if the Government does not agree to its preferred solution, which is the complete removal of price controls altogether.

Rick Lowe, Nassau Motor Company’s (NMC) director/operations manager, told Tribune Business that dealers needed the two percentage point increase to recoup margins lost as a result of the change in Excise Tax calculation methods.

He explained that VAT’s implementation, combined with price controls and switch from the Cost, Insurance, Freight (CIF) method to Freight on Board (FOB), meant a mark-up increase was essential for some businesses to survive.

“If we’re not allowed to mark-up any longer on the Insurance and Freight, because we are not paying duty on those two aspects, it reduces our margins by that percentage. We need to somehow recoup that margin,” Mr Lowe told Tribune Business.

The Bahamas Motor Dealers Association’s (BMDA) submission to the Coalition, as stated in its VAT issues list, essentially argued that price controls on the auto industry are not needed.

“Competition both here at home and from the US market controls prices,” the Coalition’s list says. “Also, when the final decision is made on Excise Tax/Duty on cost value, a 25 per cent mark-up on new vehicles affects our gross profit, and business needs a certain gross profit to survive.

“In some instances, maybe adding 1 per cent to our gross profit could mean the difference of breaking even or losing money.”

As for parts, the BMDA said the price control mark-up should be increased from 75 per cent to 90 per cent to give dealers “more flexibility”.

Mr Lowe said Bahamian auto dealers typically carried much more parts inventory than their US counterparts, worth several million dollars, but price controls did not allow them to differentiate between slow and fast-moving inventory.

“With regard to parts, the limit should be raised to 90 per cent to allow more flexibility,” the BMDA submission to the Coalition said.

“For example, in North America car companies mark-up less on fast moving parts and more on slow moving parts to cover holding costs etc. We do not have that flexibility.”

As a solution, the BMDA recommended: “ Raise the price control mark-up on vehicles to 27 per cent, and on parts to 90 per cent, or remove all together.

“Relax or eliminate price control, or allow VAT at the border to be considered a part of costs for mark-up purposes.”

The BMDA added that price controls prevented businesses from passing increased costs on to consumers, and “skewed” prices for non-price controlled items “higher than they should be”.

“VAT at the border represents a significant opportunity cost, which will result in higher overdraft fees and force companies to reduce their inventory, and therefore reduce service levels leading to further degradation of sales,” the BMDA added, although the Government’s decision to allow the deferral of border VAT should alleviate the sector’s concerns here.

Elsewhere, the auto industry has also called for an auditor to sign-off on “obsolete or damaged inventory”, so that dealers could recover VAT input costs associated with parts/inventory write-offs.

“This would allow us to recover some money rather than literally throwing it away,” the BMDA argued.

And, when it came to vehicles ‘traded in’ as part exchange for a new one, it added: “To charge VAT on the full selling price of the new vehicle seems excessive when the customer is trading a vehicle in.

“VAT should be charged on the net amount the customer pays for the new vehicle. VAT will be charged when the trade in vehicle is sold.”

The BMDA also called for no VAT to be levied on warranty repairs, adding that the Act and regulations were “silent” on this issue - one where they frequently lost money.

And it urged the Government not to levy the 7.5 per cent tax on demonstration vehicles, used by sales and service staff for test drives and company business, until they were sold to the final customer.