TAX NEWS - JUNE 2010

Bahamas Tax: Ingraham announces tax changes

by KRYSTEL ROLLE, 03 June 2010 -- Prime Minister and Minister of Finance Hubert Ingraham announced in the House of Assembly yesterday that the government has decided to adjust the criteria by which imported vehicles are categorized for customs duties, and to lower the tax he announced last week that will be applied on local beer production.

Ingraham led debate on the 2010/2011 budget and indicated that the change of heart was reached after the government met with concerned business people.

Last Wednesday, Ingraham announced that a rate of 65 percent will be taxed on passenger vehicles with an engine of 2,000 cubic centimeters or less, and a rate of 85 percent will be charged for all other passenger vehicles and trucks. The changes took immediate effect.

However, he announced yesterday that after meeting with the New Car Dealers Association, the government has agreed to modify the tax system to create a new category.

"We still believe that 2,000 cc is the appropriate standard," Ingraham said. "But we are prepared to amend the Tariff Act to permit cars with up to 2,500 c.c. to also benefit from a lower rate of tax duty, but in a rate of 75 percent."

A rate of 85 percent will be taxed for vehicles with engines greater than 2,500 cc.

The amendments will come into effect on July 1.

The prime minister indicated that people who have paid the higher rate of duty since the announcement was made last week would receive a tax credit if their vehicles now fall into the 75 percent bracket.

"We have determined that it is not in the interest of The Bahamas to continue to facilitate the import of large vehicles," Ingraham said. "Those who wish to do so should do so and pay the cost. The duty rate of 85 percent is not new. There has been a duty rate of between 55 and 85 percent on the books for 15 or more years."

Ingraham pointed out that 85 percent was only applied to cars of a certain value such as Jaguars and Mercedes Benz.

He said the government has now determined that it will tax vehicles based on their engine size.

"I met with the New Car Dealers Association and they made strong representative cases," Ingraham said. "In one case, Friendly Ford, they had no cars that would meet this standard and said the effects would be devastating to their business and employment."

The prime minister said by making the amendments to the Tariff Act, the government is seeking to encourage dealers to offer for sale more fuel efficient vehicles.

He added that the government doesn't expect the change to impact its revenue collection in any substantial way.

He added that at another time the government will make decisions about the importation of wrecked and very old vehicles.

Ingraham noted that vehicles with engines of 2,000 c.c. or less include the Hyundai Accent and Tucson, the Kia Sportage and Rio, the Honda Civic and Fit, Nissan Sentra, Pontiac Vibe, the Toyota Corolla and Matrix and the VW Golf.

The government is also proposing changes to reduce the differential in taxation between domestic and imported beers.

Initially, Ingraham announced that the Spirits and Beer Manufacture Act will be amended to provide for the rate of tax on domestic production to be increased from $4 to $6 per gallon.

However, he said yesterday the tax rate will be increased by $1 instead of $2.

"We had discussions with Commonwealth Brewery and Sands Beers," Ingraham said. "There's no question that it is our belief that the differential between locally produced beer and foreign beer is too high."

He said a case of Kalik, which is produced in The Bahamas, attracts $7 in taxes while a case of imported beer attracts $18.80 in taxes

"So a case of Budweiser that comes to The Bahamas for $10 ends up costing $28.80," Ingraham said. "Kalik is sold at $34 a case and imported beer at $40 a case."

He also said Kalik has now graduated from the "government school of subsidy and must now pay duty like everybody else."

"Even though they pay a lower rate, they pay the same rate as manufacturers. So they are graduates of our school come July 1," he added.

That increase will bring in an additional $6 million to the government, Ingraham said.

He added that that figure won't affect the total expected revenue because the government had initially decided to reduce the tax rate on imported beer.

"Then we persuaded ourselves against giving any such bonus to the sellers of beer," Ingraham said. "We think it's fair that Kalik would pay a dollar more and Sands would pay a dollar more. And we don't propose to revisit the matter in the immediate future."

He said the new tax on beer will begin on October 1.