THE recent increases in the world prices for oil has led to record prices at our pumps with fuel costing as much as $120 per litre leading to calls on the government to cap the advalorum tax on fuel.

But removing or capping the tax would be shortsighted and ill advised. In a free market high prices serves as a most important signal to consumers to cut consumption. Retailers have been complaining that that demand for fuel has fallen and this is a clear indication that the market works.

It is well known worldwide that fuel tax is one of the most progressive forms of taxation as it is easy to collect and as persons with higher incomes consume more, they also pay more. With this in mind most developed countries have high taxation on gasoline.

Despite the high prices at the pumps, Jamaica has one of the lowest prices for fuel internationally because of our relatively low fuel tax.

Jamaica should follow the example of other countries and increase fuel tax while lowering other forms of taxation, particularly transport-related taxes, but could also be extended to GCT and income tax.

Fuel tax also has the added advantage of encouraging the use of smaller cars and public transportation. It is also better for the environment.

Rather than focus on fuel tax Jamaicans should instead look at the overall cost of transportation, public and private, fuel is just one element, a very important one, in the cost of transportation. Other components are, cost of vehicles, finance cost, insurance, depreciation and maintenance.

Cost of vehicles

The purchase price of vehicles is highly influenced by government’s highly restrictive import policy and the excessive taxation currently running as high as 180 per cent.

This needs to be reduced to normal levels, of around 15 per cent to 20 per cent, coupled with a removal all age limits from vehicle imports. Doing so will lead to reduction not only in purchase price but also finance costs, insurance and depreciation.

By reducing the cost of newer vehicles consumers will be better able to afford more fuel-efficient cars. Last year an estimated 10,000 cars were imported into Jamaica representing only two per cent of the estimated 500,000 stock. At this rate it will take 50 years for full turnover of the existing stock. Jamaica needs about 35,000 cars per year or about seven per cent of stock to ensure that gas-guzzlers are orderly removed from the stock.

Instead of reducing the fuel tax Jamaicans will be better off if government, did the following:

* Reduce import duties on cars

* Remove age restrictions on imported cars

* Fix the roads

* Launch a major PR campaign to encourage good driving habits.

Fix the roads

Bad roads add significantly to the cost of transportation, by driving up maintenance costs. Potholes damage vehicles, drives up costs and increase inefficiencies. It costs less to fix the potholes as they appear rather than waiting for weeks or months. It is still amazing to see huge craters on major roads lasting for months, and damaging several cars every day.

Make diesel cheaper than gas

Public transportation of goods and people generally rely on diesel rather than gasoline. Unfortunately diesel has been more expensive than gas although diesel is cheaper to produce. There needs to be a minimum $10 difference between the price of diesel and gas to encourage the use of diesel and give public transport operators a well-needed break.

Jamaica had better face reality. Every time there is an oil-crisis, prices go up, way up, then come down and settle at a price higher than the previous pre-crisis levels. It happened in the ’70s, again in 2008 when a barrel reached the record of over US$150, and will happen again.

Government needs to spearhead a public relations campaign to encourage energy conservation habits. Encourage the use of smaller cars, car pooling, and better driving habits.

Good driving habits can save as much as 20 per cent in fuel consumption, This alone is better than capping the tax at the levels suggested.

More importantly we need to retool our car stock. As much as half the cars on our roads may be over 15 years old, thus using old technology. The restricted import policy has not facilitated the orderly replacement of old vehicles. It is amazing to see cars, which were imported in 1995 still being used. These cars still drive well, but they are very inefficient compared to the newer models, Unfortunately a lot of drivers simply cannot afford to replace the gas guzzlers at current replacement prices.

Andrew Jackson is CEO of JETCON CORPORATION a used car dealership and past president of the Jamaica Used Car Dealer Association (JUCDA). The views expressed do not reflect those of the JUCDA. Visit our Facebook page

www.facebook.com/jetconcars