Mario James, Gleaner Writer
Last week's implementation of the now gazetted tax schedule as it applies to motor vehicle imports has caused some consternation from the new car dealers, resulting in a backlog of vehicles to be cleared from the wharves as it is not clear as to what the final price is to the end user. "The new aggregate tax, known as the SCT (Special Consumption Tax) was ambiguous, as to its placement in the cost calculations ..." said one new car dealer, before the May 12 deadline. Now that the new revised schedule has been implemented, there are still questions that for some dealers remain unanswered.
The calculation of the cost of a new car, indeed of any imported motor vehicle is a tortuous affair. Under the old system, figuring the price called for a two phase formula. If a car was being imported for $10,000 US which had an engine size of 2000 cc, the first phase of calculations geared towards paying what insiders call 'Input Tax' which was calculated by finding first the vehicle Duty (40 per cent of the Cost, Insured and Freighted value or CIF, or $4,000).
Customs User Fee
This was then added, or compounded, to the CIF (total now $14,000 US) and a variable rate of GCT applied depending on engine size. For this example, the rate was 38.46 per cent, which when calculated yields a value of $19384.40 US. To this figure is added a Customs User Fee (CUF) of 2.0 per cent and an Environmental Tax of 0.5 per cent applied to the CIF value only (not compounded) which works out to $100 and $50 greenbacks respectively. Total now becomes $19,534 US.
That $9,534 is payable to government before the car, now presumably in the hands of a DEALER, leaves the wharf. To reinforce, it is known as INPUT TAX.
When the car is sold, the dealer does the calculation again, but includes in the computation his markup (for our purposes let us say this is 20 per cent of C.I.F.) plus a figure known in the industry as 'Recoverables', which is the cost of bringing the vehicle to market. This includes expenses such as marketing, wharfeage, transportation, storage, plus pre-delivery inspection (PDI) costs, and allows the dealer some leeway to establish expenses. Let us say that this particular car cost the dealer $500 US to be sold. Adding $2500 US to the previous total, we now have $22,034, to which GCT of 16.5 per cent is yet again summated. We are therefore left with $25669.61, which is the purchase price of the vehicle.
administrative costs
We are not finished yet! Government still has to get some money out the back door as well. Subtracting the $2500 from the purchase price (dealer markup and 'recoverables') from the purchase price, we are left with $23,169.61; this is then subtracted again from the INPUT tax ($19,534) which forms an OUTPUT tax of $3815.61, payable to the good old Government of JA. For our example, GOJ would have received $13349.61, or 133 per cent the cost of the car. Aside from administrative costs, there is no other expense incurred to perpetrate this rape of the Jamaican motorist. It, in effect, nets many times more than the manufacturer of the vehicle. Also, in past times, this output tax was not paid over by certain used car dealers, resulting in close to two billion dollars of uncollected tax which seems to have been written off by the Ministry of Finance and is probably one of the factors figured in this new tax configuration.
The recently gazetted schedule has introduced a new tax called SCT (Special Consumption Tax) into the mix, but not much more has changed. The dealers have lobbied for the sub compact class (engine size 1000 cc and less) to be excluded from the new tax, as it is now politically expedient to be green, and rightly so, as the little jelly beans are more fuel efficient. And while the SCT varies with engine size, there is to be a 10 per cent reduction in its application to diesel engine'd automobiles and trucks (again, the green thing). Gas engine auto prices, however have risen an average of 10 per cent across the board for cars. Trucks have seen a net decrease in price, as they are now categorised by weight. The bigger trucks (F150, Avalanche, Tundra and Ram) once they are categorised as being flexible fuel capable vehicles will be parked at an SCT rate of 63 per cent. The rate for a truck up to 1720 kg is 10 per cent; from 1721 to 2200 kg 45 per cent; over that 110 per cent.
micro cars
This all means that cars with gasolene engines car will take a nine to ten per cent increase across the board, up to about 3200 cc, after which the price increase moves off towards the horizon (with the exception of the micro cars), which is in line with government's new green colour scheme (I hope we can see the humour in that!) as it gives the consumer pause to think about getting more fuel efficient vehicles. However, the intent to strangle the sector is being carried over from the previous regime and has to be looked on by consumers as nothing short of draconian.
Why take out the inefficiencies of the past on today's taxpayer? Are we being made to pay for the inability of the past administration to collect on a bad debt? While it is commendable that its collective thoughts reflect the colour of their movement, Automotives thinks that the precepts and concepts that drove the technocrats to these extreme measures of taxation are antediluvian, and need to be brought up to modern times. If it is more money they want, GOJ should be finding ways to get more people into the tax net by decreasing the tax burden, not trying to tax the sector out of existence. What happens when the market does not show up?
mario.james@gleanerjm.com
