I recall about 6 years ago speaking with Andrew in his office on this very topic. It was the topic of Chinese auto import potential in the market as I had done some research on the market and opportunity for a client.
I lamented the fact about the ridiculous duty imposed on used and new cars when imported into the Island. Now to read his article really demonstrates how backwards the previous government was for the 18.5 years they were in power and now the same level of backward behaviour in the present regime in respect to auto imports to Jamaica.
Spreading the taxation burden
If we start to look at cars as a necessary part of our lives, we start to see things differently. Taxation policy should shift the huge burden of taxation from acquisition to usage, thus spreading the tax take over the life of the car. This can be done by reducing the excessive import taxes on cars to normal levels of around 15 per cent while increasing the tax take on fuel, vehicle registration, driver’s licence, vehicle inspection and so on.
Vehicle registration, for example, is currently approximately $3,000 per car per year; this is a ridiculously low price to pay to use the country’s most valuable infrastructure, our roads. This only yields about $1.5 billion, per year; no wonder our roads are in the state they are.
Government currently earns an estimated $15 billion from vehicle imports. This figure would be reduced to approximately $3 billion, and would be re-balanced with an approximate $15 increase in fuel tax. Car purchasers would see an approximately $400,000 reduction in car purchase price (based on 1500cc car with CIF US$10,000), an approximately $200,000 reduction in financing cost and 20 per cent reduction of annual insurance cost.
A motorist’s fuel bill would increase by less than $2,000 per month (based on 1,000 km per month travelling and 8 km per litre fuel consumption). Government revenue would go up by approximately $15 billion, (based on one billion litre per year consumption), The end result would be a net gain to government of $3 billion. This is the model used in most countries; cellphone companies also use this model very successfully when they sell handsets at a discounted price and make profit from the usage.
This approach will save consumers while increasing government’s revenue over the life of the car. It is a win-win for all. Over a 10-year life of a car the largest costs are, financing, insurance and fuel. This new model will significantly reduce financing and insurance costs while marginally increasing fuel costs. There are many advantages to this model over the current one. With the availability of newer, more efficient technology, fuel costs will actually come down.
Source: Jamaica Observer.