Dealers’ under-invoicing putting new-car dealers at a disadvantage

Government is said to be losing millions of dollars per year in import duties and taxes as a result of some car dealers and individuals importing vehicles and declaring them at “unrealistically low values”, as well as incorrect categorization.

Barbados TODAY several cars imported over the past three years were either not being entered under the correct tariff heading or were being under-invoiced, and therefore were paying significantly lower taxes.

Investigations also revealed that over the same period, several importers of motor vehicles under-declared the value of the vehicles, cheating the Government out of millions of dollars in much needed duties and taxes.

Documents obtained by Barbados TODAY showed that one St Michael used-car dealer imported a brand of vehicle that was valued at more than US$20,000 CIF, but declared it at a value of under US$10,000 CIF, therefore paying significantly less duty and taxes. There were several such examples.

In one case, the amount of taxes to be collected on the vehicle would have been close to BDS $230,000, but just under half of that was paid because the high-end vehicle was entered under the incorrect tariff heading.

Last Friday, Minister of Small Business, Entrepreneurship and Commerce Dwight Sutherland announced that he would be putting a stop to “irregularities” in the automotive market.

As an example, he pointed out that automotive importers are not required to apply for a licence to import a vehicle such as a Toyota Hilux which is considered a truck and which falls under a tariff number 8704, as oppose to the vehicles that carry the tariff number 8703, which are considered passenger cars.

This came after some of the island’s new-car dealers complained that this segment of the market had declined by as much as 15 per cent, due partly to the practice by some used-car dealers and private importers to under-declare the value of new vehicles. These are then sold for up to $25,000 less than what the new-car dealers are able to sell the same model vehicle.

However, several used-car dealers told Barbados TODAY they were able to pay lower taxes because they were able to disassemble the vehicles and then reassemble them once on island.

Barbados TODAY also understands that there is currently only one authorized “manufacturer” in Barbados, which was created to assemble motor sport vehicles and completely knocked down (CKD) vehicles.

However, several other garages have been putting the disassembled imported vehicles back together for the used-car dealers.

Sutherland has indicated that changes would also be made in that area, with the implementation of a registry for assemblers of vehicles.

One car dealer who has been in the industry for more than three decades told Barbados TODAY that all industry operators wanted was for the regulatory authorities to have the correct and enforced oversight at the port of entry to ensure that both the used imports and new imports are declared at the correct values.

“I believe this is what the minister was referring to when he spoke about a level playingfield.

“There is a serious issue relative to the declared values, the age of units and correct allocation of the cars to the correct tariffs. All of these have major implications on the level of duty and tax calculation and therefore the revenue that the Government generates from said imports,” he explained.

“It is a free environment and everybody is entitled to their business, including the used vehicle importers. That is not the issue. The issue is that there is a serious loss of revenue to the Barbados Government when it comes to the importation of used cars and new vehicles with incorrect values and tariffs assigned.

He continued: “These cars that are coming by the hundreds every month, are using the same infrastructure, the same demands are being placed on our roads and so on, but the Government is not earning the correct revenue from said imports. Additionally, jobs are at stake and the dealers and importers who practice good corporate governance, remit to Government all the relevant corporate and staff payments as required by law, invest in their staff through training, have massive existing infrastructural investment, significant investment in parts to support the brands they represent, and the livelihoods of thousands of people directly and indirectly linked to their businesses, are under serious threat.”

Barbados TODAY investigations also revealed on vehicles coming into the island, duties of 45 per cent are calculated on the cost, insurance, and freight (CIF) of the vehicle and then it is added back to the CIF.

The excise tax is then applied to the CIF plus duty at a rate of between 31 per cent and 105 per cent in the case of new cars and 46 per cent and 120 per cent for used cars.

This results in a compounding effect. Therefore, any reduction in CIF invoice value has a significant impact on the revenue collected, one dealer explained.

In relation to the importation of disassembled vehicles, the car dealer explained, “When a new high-value vehicle comes through the Bridgetown Port with the chassis and the shell separated, it is likely that these are attracting the duty and taxes applicable to parts imports of between five per cent and 30 per cent. This is in stark contrast to the same model and year vehicle coming in as a complete unit, attracting a duty of 45 per cent and an excise tax as high as 120 per cent.

“It affects the ability of the new-car dealers from the perspective of their ability to sell cars into the market because if you have a vehicle which I bring with a cost for example of US$10 and you have an identical vehicle being declared at US$5 or benefiting from incorrect classification, when that vehicle goes into the market the reality is that because it has not paid the correct duties that are applicable it means that I am at a significant pricing disadvantage and appear to be overpricing the product or working for very high profit margins which is certainly not the case,” he said.

“The same thing applies to vehicles that are not new. If they are being under-invoiced to the extent we believe they are being under-invoiced by virtue of being offered in the market for so much less than our equivalent vehicle of an equivalent age, this not only makes the new car seem as if it is over-priced, it disadvantages people who currently own a similar model by artificially lowering the value of their vehicle due to a false import cost of the under invoiced product,” he explained.

Sutherland has given the assurance that the ASYCUDA World system, which became fully operational towards the end of last year, would result in increased levels of transparency, compliance, predictability and accountability.

However, estimating that Government could be losing between $30 million and $50 million a year from vehicle imports, one industry expert said while the new customs system was a significant improvement in several areas “if you put rubbish in a computer you get rubbish out”.

“At the end of the day there is still a level of due diligence that the authorities need to have,” he said.

“The challenge is that the regulatory authorities need to ensure that the values of the vehicles and the tariffs that are being applied to the imports are correct. That is critical . . . But if you have used-car dealers and private importers bringing used cars under-invoiced or bringing the new cars under-invoiced or applying the incorrect tariffs, it makes a mockery of the whole system at a time that every possible revenue stream is required in support of the Government and the people of Barbados,” he said.