Rent-a-car sector wants motor vehicle duty structure formalised

Rent-a-car sector wants motor vehicle duty structure formalised

BY ALICIA DUNKLEY Observer senior reporter

Thursday, February 23, 2012

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THE Jamaica Rent-A-Car Association has appealed to the Government to consider formalising the duty structure on motor vehicles for the rent-a-car business arguing that this is necessary if the industry is to remain viable given increased global competition.

"The competition worldwide is severe, and we are consequently expected to provide a high standard of product at competitive rates. In this, our 50th year of Independence, we expect more visitors to Jamaica, and this association is a key component of the tourism sector for ground transportation," Diana Stewart, president of the Jamaica Rent-A-Car Association Limited, told the Tax Reform Committee of Parliament during its meeting at Gordon House in downtown Kingston on Tuesday.

Pointing out that the industry is a net foreign exchange earner, which employs hundreds, Stewart said a legislative policy on duty relief is vital to the industry for several reasons.

"The industry needs a level playing field internationally as we face worldwide competition. The Internet has enabled each component of a vacation or visit to be scrutinised universally. This has allowed visitors to compare prices between all competing destinations. Since rental rates are directly related to the cost of vehicles and in order to meet and beat the competition from other countries, it is imperative that our rates and quality must be internationally competitive thereby necessitating a need for a reduction in our cost structure," she told the committee.

According to Stewart, Jamaica's taxes on vehicles "are extremely high compared to competing destinations".

"Most of our main competing destinations, to name a few, Cayman, Barbados, Florida, Mexico, St Maarten have sales taxes or duty rates of zero per cent, 6.5 per cent and 16 per cent on vehicles. Jamaica's duty for the rent-a-car industry starts at 20 per cent duty for under 999-cc motor vehicle, then moving to 32 per cent, 44 per cent and 56 per cent, however, for safety reasons, we do not include 999-cc vehicles in our fleet," she told members.

"Taxes can only be earned if vehicles are purchased and operated. If the cost becomes prohibitive, the cars will not be purchased, and the Industry becomes counterproductive and no taxes or revenue are collected. For example, because a concession was not granted in 2008 for the winter tourist season only 36 vehicles were purchased, bringing the Industry almost to its knees," she noted.

In the meantime, the association head said the added reality of extremely high accident rates on account of bad road conditions has put the industry in Jamaica at "a major disadvantage compared to other destinations".

"This is as our repairs and maintenance costs are extremely high by comparison, due to high duties and General Consumption Tax (GCT) at 17.5 per cent on spare parts, as well as high bank interest rates, extremely bad and challenging road conditions, high fuel costs, high insurance premiums and high cost of financing our fleet. The yearly maintenance of each vehicle is extremely expensive at approximately $450,000 per unit," Stewart said.

According to Stewart, the Government has more to gain than lose from reducing the duties to the sector.

"Duty reduction to the rent-a-car industry is not a concession waiver in the proper sense, it is temporary relief, but provide well-needed revenue for the government, because when the cars are purchased and rented GCT of 17.5 per cent is charged on the rental contracts. We are the only tourism sector that pays 17.5 per cent as we do not receive the benefit of the 10 per cent concession granted to the rest of the tourism industry. Also, bear in mind that if any damage to a vehicle occurs, the Government immediately receives 17.5 per cent GCT on the repairs," she said.

"There is a pressing need for a national car policy, we need legislation to provide a seamless fleet replacement programme to avoid the pitfall of having to renegotiate duty concessions each year," she argued.

In making a pitch for a new tax regime the association has recommended that a 20 per cent duty be put on vehicles and that the depreciation on a rent a car should move to 35 per cent per annum in the first year, 25 per cent in the second and third year, and 15 per cent in the fourth year to reflect the road conditions in Jamaica.

An independent study commissioned by the Rent-A-Car Association in February last year showed that direct taxation contributions from the sector reached almost a $1 billion in 2010. The total rent-a-car fleet is now over 3,100 units islandwide. The rent-a-car Industry, was known as the U-Drive Association before it underwent a name change in 2009.

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