Used-car dealers are wary of how the new General Consumption Tax (GCT) policy, which the Government announced for the sale of local second-hand vehicles, will be practically applied and benefit to this sub-sector of the motor vehicle sales industry.

Head of the Jamaica Used Car Dealers Association Lynvalle Hamilton says while the Government is seeking to encourage dealers to participate more in the sub-sector, and critical data on that area of the industry will now become available, it should be noted that the GCT cannot fall below the second sale tax threshold of $12,000 or $18,000, and noted that there have been instances where dealers were forced to sell without a profit.

“They’re trying to direct the business to the dealerships, so that they can pay the tax, [but] I’m not sure how they will work that out because there are times when you will sell a vehicle and not make a profit, or if you make a profit, you have to pay some tax; if you don’t you pay some tax. I’m not sure that is fair,” he told the Jamaica Observer on Wednesday.

He was reacting to the announcement made by Finance Minister Dr Nigel Clarke in his 2023/24 budget presentation in Parliament on Tuesday, regarding the formalisation of re-sale motor vehicle transactions, by having dealers pay 15 per cent GCT on the mark-up portion of the sale price of secondary vehicles instead of on the full sale cost, as now obtains.

Dr Clarke said currently the industry is silent on secondary sales, which are not reported on in the country’s goods and services statistics: “We aim to awake that industry here in Jamaica,” said the minister.

The minister said that with the number of licensed motor vehicles in the island moving from 330,000 to 473,000 between 2016 and 2022 — a 43 per cent jump — more needs to be done to deepen the motor vehicles services sector, to create jobs, and possibly reduce imports.

He argued that the motor vehicle trade-in sector lacks vibrancy. “That doesn’t mean that [second-hand] vehicles aren’t re-sold, but this is largely done and handled by the owners by themselves, even when you go to the lot. The reason for this seeming absence of registered car dealers in the second sale space is that the GCT of 15 per cent is collected on the full sale price of secondary cars, whereas when an individual sells it, it’s a fixed [second sale tax] fee of $12,000 or $18,000,” Dr Clarke said.

Hamilton is questioning how the new regime will be policed at the level of revenue collection, given how title transfers are conducted, which is the point at which the second sale tax is applied to the sale.

“Normally when a vehicle is sold the person who owns the vehicle goes to the tax office and transfer that vehicle — sign off the back of the title — and the person who is purchasing the vehicle would take it to the tax office. I’m not sure how the Government would be able to police that. It would be very difficult and they haven’t outlined what the steps would be,” he said.

Hamilton noted the aim to pull more persons into the tax net, as lower taxes may encourage compliance. “The higher or more unreasonable the tax, the more likely you’d have persons trying to evade…it’s not profitable to purchase a local used vehicle apply GCT on the whole sale of the vehicle [so] persons would not pursue that sort of a sale,” he said.

He pointed out that the new policy would address the issue of a lack of data on second-hand vehicle sales, as currently the numbers are not known across the industry. “I don’t know if it will make a big difference in the market, but what transpired before wasn’t really happening as it should. I don’t know if they’re going to put in a new system at the tax office — the dealers will now have to account for the GCT amounts. We wouldn’t normally send a tax invoice with a locally owned vehicle that we purchased, [but] I guess the Government would want to implement that now,” he said.

At the same time, Hamilton questioned whether the new arrangements would take into consideration the cost to dealers, to recondition second-hand vehicles that they put up for sale. “I do believe that that should be taken into consideration,” he said.

The finance minister said formalising this area of the industry could lead to the birth of new companies and firms in the business of trade-ins, and provide a true reflection of the contribution to the overall economy. “This would bring Jamaica in line with other jurisdictions with value-added regimes such as Canada, the UK and Barbados. The benefit of adjusting our regime is to provide more options to consumers, to reduce the hassle of selling second hand,” he said.

Under the new arrangement, individuals selling their motor vehicles will continue to pay the flat second sale fee of $12,000 or $18,000 depending on the engine size of the unit.

Legislation is to be brought to Parliament to effect the policy.