Brakes on bond cut ballyhoo

An 80 per cent reduction in the bond on import duties paid by new-car dealers will not automatically result in lower prices for vehicles, Automobile Dealers Association (ADA) Chair Jacqueline Stewart Lechler has confirmed.

She said businesses may choose to invest the money that would have gone to the bond back into their companies.

The announcement by Fayval Williams, minister of finance and the public service, that the Government will reduce the bond on duties paid by new-car dealers from 100 per cent to 20 per cent has triggered debate on whether new cars, including luxury vehicles, will come at a lower cost.

Williams was making her opening presentation in the Budget Debate on Tuesday.

“That’s a narrative that you expect people to take. When expenses are reduced, a business is in a bit of a better place to offer better pricing. I would further add to that that the car industry is very competitive. There is a lot of choice in terms of brands and models.

“So the landscape is pretty competitive, and this will simply help businesses to invest more because the cash is freed up. They could choose to invest in building, tooling, more stock, lowering overall expenses. So it’s not a one-off thing,” said Stewart Lechler, who is also managing director of Stewart’s Automotive Group.

Further, she said car dealers interface with many different government agencies –including the trade board, Customs, and the Island Traffic Authority – pay several taxes and other expenses before the product is put in customers’ hands.

“So if one were to take their time and look at the taxes levied for the industry, the cost of running the business tends to be high,” she said.

Cars are imported and stored in Customs-controlled warehouses, with the importers having to pay a bond on the items that are retained until the duties they pay on the imports are cleared, economist Keenan Falconer explained.

The value of the bond, he said, should be equal to 100 per cent of the value of the imports. Now, they will effectively get a discount of 80 per cent.

“So it’s not the duties that are reduced. Essentially, it means that it becomes less burdensome to clear new cars from the wharves because less money would now be required to be paid up front while the remainder should be paid when the vehicle is sold,” he said.

He assessed that the intent of the policy initiative is to reduce one of the costs importers have to pay to clear new vehicles, which could result in some savings that are passed on to the consumer.

However, Falconer said for other non-market determined reasons, this may not necessarily occur all the time, and it is unlikely that this will happen in the main since actual duties haven’t been reduced, and savings are likely to be retained.

He noted that if more people are incentivised to purchase newer vehicles as a result of any potential cost reductions then there would be a shift in preference away from used cars.

“Overall, I see the policy as one where the Government is trying to stimulate private enterprise, and businesses are likely to benefit the most among all stakeholders, especially smaller importers who can become more competitive relative to their larger counterparts,” he said.

Still, Stewart Lechler stressed that the policy addresses administrative matters, while noting that the bonds were not putting money in the Government’s coffers as revenue.

It was “basically, like a deposit” and benefiting no one, she said, adding at the same time that the call had long been made for the Government to address the issue.

“It was not benefiting the country, and it was not benefiting the dealers,” she said.

Lechler said Williams’ decision, which she commended, was not geared at affecting any product but was instead an attempt to remove bureaucracy and administrative costs to allow people to invest in Jamaica.

kimone.francis@gleanerjm.com