Currently, the standard rate of General Consumption Tax (GCT) is not applied to the sale of second-hand vehicles, Minister of Finance and Planning Dr Nigel Clarke reminded the House of Representatives on Tuesday.
He informed fellow Member of Parliament that the Government has been taking steps to revitalise the second-sale used car market in Jamaica, providing more options for consumers who want to sell their vehicles, as second sales of motor vehicles by individuals are not currently included in the calculation of gross domestic product (GDP).
According to experts in the field, the reform of the GCT treatment of second-hand car sales will bring Jamaica more in line with established international value-added tax (VAT) treatment, as against the current regime which is said to be an inducement for second-hand car sales by GCT registered taxpayers such as dealers, which in turn impacts the ability of the dealers to purchase and resell second-hand vehicles and offer trade-in arrangements.
The current system favours second-hand car sales by taxpayers who are not GCT registered, which can also facilitate tax leakage. But, according to the minister, "a specific sum is payable based on the age of and the CC rating of these vehicles being sold to individuals".
He went on to explain to the Parliament and listeners, on Tuesday, as he opened the 2023/24 Budget Debate, that, "part of the challenge stems from the fact that the law calls for GCT of 15 per cent to be collected on the full sale price for any vehicle sold by a dealer, whilst an individual is able to pay a flat rate of GCT of either $12,000 or $18,000".
According to the minister, as a result of the disparity in treatment between registered car dealers and individuals, "registered car dealers refrain from the trade-in-space, since they are unable to profit from the business of trade-ins".
Dr Clarke said that if second sales by individuals are not captured in the calculation for GDP, the benefit of formalisation would lead to a more accurate reflection of the true economic activity of the motor vehicle trade in the country.
Clarke, who was addressing the issue of the implementation of the standard rate of general consumption tax (GCT) on the second sale of motor vehicles by registered car dealers, said that the benefit of adjusting the regime to provide more options to consumers on selling their second-hand vehicles to reduce the hassle of selling second sale vehicles while removing the security exposure of sellers, and to enable the building of a vibrant trade-in market which will be more visible to the tax authorities, providing additional revenue on a higher tax base.
He said that the proposal calls for the introduction of a margin scheme mechanism to permit GCT-registered taxpayers to account for GCT on the sale of second-hand vehicles. The GCT will be limited to the differences between the purchase price and the selling price of the vehicles.
Under the new scheme to be introduced by his ministry, he said that individuals owners selling their motor vehicles will continue to pay a flat rate of $12,000 and $18,000 in lieu of GCT, while registered motor vehicle dealers, selling second sale motor vehicles (not imported new and not imported used) would pay a rate of 15 per cent of the dealer's dollar margin (and not of the sale price) but no less than the amount to be paid on individual sales.
Clarke added that the scheme will be accompanied by the necessary rules and conditions to provide equity, improve formality, and preserve government revenues.