The Tribune Business of Tuesday July 1, 2008 quotes your not so humble blogger and Mr. Dionision D’Aguilar, president of the Bahamas Chamber of Commerce and Mr. Zhivargo Laing, the Minister of State for Finance as follows:

Tax Increases to ‘hammer’ auto industry

by Neil Hartnell, Tribune Business Editor

The Bahamian auto dealer industry will be “hammered” by the Government decision to increase the amalgamated duty rates levied on its vehicle imports by 3 per cent, one industry executive yesterday telling The Tribune this could raise end-consumer prices by as much as $1,000.

Rick Lowe, operations manager at auto dealer Nassau Motor Company, said that based on the information he had received following a Customs Department presentation to wholesalers, retailers and customs brokers on June 28 last week, taxes levied on each vehicle category were due to rise by 3 per cent.

“Our industry is getting hammered” Mr Lowe told Tribune Business.

He explained that with Government’s implementation of the new Excise Tax, part of its strategy to protect its major revenue-raising items from the World Trade Organisation’s (WTO) trade liberalisation policies, vehicles and vehicle parts were now being placed under this Act rather than the Tariff Act (this amalgamates import and stamp duties anyway).

Yet it is the ’rounding ‘ of Tariff and Excise Tax rates that has caused consternation for the auto dealers and other industries, as in many cases the combined import and stamp duty rates are being rounded up, not down.

For example, instead of a combined 35 per cent import duty and 7 per cent stamp duty rate – 42 per cent – being rounded down to 40 per cent, in line with the Government’s decree that tax rates increase in multiples of five and 10, it is being rounded up to 45 per cent.

Mr Lowe said this ’rounding up’ strategy was being applied to all auto auto tariff rates, with combined duty rates of 52 per cent, 57 per cent, 72 per cent and 82 per cent being rounded up respectively, to 55 per cent, 60 per cent, 75 per cent and 85 per cent.

“They’re rounding it up even more and it’s sticking every industry,” Mr. Lowe told The Tribune Business.

“From the information I have received so far, and we have not finished a detailed investigation, it appears the vast majority of part and vehicles are increasing by at least 3 per cent. It’s going to impact the pricing consumers, possibly by $1,000 or more, depending on the size of the vehicle. The duty they pay will be higher by 3 per cent.

Mr Lowe said any price increases were unlikely to impact the larger, more expensive vehicle imports as they were already high priced, but could place smaller models – the ones people should be encouraged to drive – were being placed “a little further out of reach”.

Arguing that the Government should have been more upfront about the likelihood of tax increases stemming from the 2008 – 2009 Budget, Mr Lowe said: “I understand on the one hand that the country’s in dire financial straits because of the national debt and the high level of uncontrolled government expenditure.

“I know they need the revenue, but be upfront with people and don’t do it through the backdoor. It leaves a sour taste in the mouth.”

“The Budget was a PR exercise and now the rubber’s hitting the road. We’re seeing the reality of the changes they’re being forced to put in place.”

Mr Lowe said the auto dealer industry are not the only ones to be impacted by the Government’s decision to round up many tariff rates.

Under the Tariff and Excise Acts, Prime Minister Hubert Ingraham announced in his Budget debate speech that all tax rates above the 7 per cent minimum for both would only increase by multiples of five or 10. Existing rates not compliant with this would be “rounded upwards or downwards” to the nearest five or 10. Yet the ’rounding’ policy is not following the basics of high school maths. Normally, numbers are rounded to the closest five or 10, yet in at least one case seen by this newspaper, the amalgamation of import and Stamp duty rate of 42 per cent was ’rounded up’ to 45 per cent, instead of down to 40 per cent, which was the closer number.

The Prime Minister himself said in his budget speech: “For example, the 42 per cent rate on golf clubs and balls, and on carpets and other textile floor coverings, becomes 45 per cent, while the 17 per cent rate on outboard motors, or on electric generating sets, becomes 15 per cent.”

“The rounding thing, while it sounds quite normal and may balance things out, is causing a bit of confusion in the process,” Dionisio D’Aguilar, the Bahamas Chamber of Commerce’s president, told The Tribune Business earlier this week, “In school, 42 was rounded down and 43 was rounded up.

“There is now the perception that what has been given is now being taken back. It is another 3 per cent. It’s instant.”

Zhivargo Laing, minister of state for finance, acknowledged that the ’rounding’ exercise could increase the total tax rate applied to “some items”.

However, he said the Government had to strike a balance in its 2008 – 2009 Budget between providing Bahamians with some relief on inflation and soaring costs of living, driven by energy and food costs, and generating enough revenue so that the administration could be fiscally responsible and fund its own operational costs.

Referring to the rate rounding, Mr Laing said: “Ultimately, the Government has to do this exercise so as to provide the maximum relief without compromising its fiscal situation.

“Ultimately, the Government would not have wanted to do the exercise simply to lose revenue. On the one hand, you’re giving massive relief.”

As a result, the Government then had to determine which Tariff and Excise Tax rates to ’round up’, and which to ’round down’, to ensure the books balanced and fiscal goals were met. However, one large Bahamas-based grocery chain, which requested anonymity, said it had “been led to believe that a lot” of tariff rates on grocery items were going to be rounded up with effect from July 1 – today.

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