Government revising duties on imported vehicles

In an effort to encourage the importation of newer, more energy efficient vehicles with smaller engines, the government has announced a number of customs and excise duty revisions.

The amendments were tabled in Parliament on Monday, November 21 by Finance Minister, Camillo Gonsalves who explained that the changes are to incentivize the purchase of newer motor vehicles, to reduce the import taxes on hybrid and electrical vehicles, and to restructure the surtax regime for all motor vehicles including the prohibition of all vehicles older than 12 years old.

“There has long been public debate on the level of taxation levied on imported motor vehicles. In some instances, tax rates peak at 140%… as access to the used car market developed. This is an objective we have had from the beginning of the year to adjust how we charge for used cars to reduce overall taxation and to incentivize the car purchaser toward newer cars and cars with smaller engines.”

For tractors and semi trailers, the excise tax rate, which is currently 55% will be revised down to 35 %, and the import duty will remain at five percent. For vehicles used to transport 10 or more people, including the driver, the excise tax rate, currently 45%, will be revised to 35 per cent and import duty will be 10 per cent. For motor cars and other vehicles carrying internal combustion engines under 1600 CC’s, an import duty and excise duty of 25 percent will be applied, down from 35 percent and 40 percent respectively.

For engines larger than 1600 CCs such as SUV’s, import and excise duties will be 30 percent, down from 35 percent and 45 percent respectively. For hybrid and electric vehicles, the import and excise duty of 20 percent will be applied, down from 35 percent and 45 percent respectively. For vehicles used in the transport of goods under five tonnes the excise duty will move from 60 percent to 30 percent. No changes will be made to vehicles above five tonnes as reductions were made to this class of vehicle in 2021.

“The result of these reforms is hoped to reduce the taxation on all vehicles with the greatest incentive going toward the purchase of newer vehicles and or cars with or more efficient smaller engines. We have adjusted the excise and customs duty regime between now and the end of the year,” the Finance Minister explained.

A new formula for the calculation of customs duties will come into effect from January 1, 2023, and according to the Minister, it will be a “multifactor model” based on the age of the vehicle, the customs, insurance and freight (CIF) cost, the base surtax as well as the engine size.

“ On all vehicles there would be a base surtax of $1,000 then we would take into account age which we previously did, an engine size factor and then there is a CIF factor which is how much you pay for the vehicle overseas. At that point is where there was some discretion applied that created some anomalies in the valuation of vehicles. We have placed a factor that will correct for an overgenerous valuation at the Port.”

Electric vehicles which do not have an engine size will use range instead, and for vehicles used in the transport of 10 or more people, seating capacity factor will be used in the calculation instead of engine size.

“When the car is young and the price is high, there is no penalty because you would expect a car to cost plenty of money. But if you brought in that car and someone, either by error or because of a ‘friend thing’, list the price at $5,000 or $10,000, the formula would penalize this departure from what is expected and add an additional price to it.

“The state might not make back all its money but beforehand there was no correction for undervaluation. Now there is a formula and because the formula is fixed you will know before you buy your automobile what the duties and surtaxes will be because the calculator will be on the Customs and Excise website. “

Minister Gonsalves said the hope is that the new rates will encourage vehicle importers o work on establishing charging stations for hybrid vehicles.