Hybrid Tax U-Turn Yields Results
After cutting the special tax on small-engined hybrid cars on June 1 2012 and introducing incentives for scrapping older vehicles, the Jordan Customs Department (JCD) has reported that 620 used cars have been replaced with hybrids. This supports the view put forward by BMI when the tax was introduced in 2010, that there is growth potential in Jordan's hybrid market, which would be hampered by the taxes ( see our online service, July 12 2010, ' Hybrid Tax Will Hit Both Industry And Treasury') .
Up until April 30 2010, hybrids were exempt from special taxes. The reaction to the imposition of a 55% tax was evident in data from the JCD, which showed imports of alternative fuel vehicles rising to 6,287 units in H110, compared with 515 the previous year, as customers tried to beat the introduction of the tax. A further threat to the uptake of hybrids came from the uncertainty surrounding the government's policy, as reports emerged that the tax would be reconsidered, leaving consumers unsure about whether to go ahead with purchases.
On June 1, the tax was cut from 55% to 25% for hybrids, while a further reduction to 12.5% was introduced for consumers scrapping a vehicle of 10 years old or more. This addresses another issue arising from the tax, which is the aging vehicle fleet. By the end of 2010, the average age of registered cars was 12 years old.
Jordan's rising petrol bill is another factor being addressed by the tax cut. In 2011, the country spent JOD920mn (US$1.3bn), which the president of the Jordan Free Zone Investors Association, Nabil Rumman, expects to increase significantly in 2012 as fuel prices have risen by more than 30% over the year. According to BMI's Oil & Gas team, the country imports around 90% of its energy requirements, and imports of electricity, gas and oil derivatives increased by 59% in 4M12, when gas supplies were disrupted by the Arab Spring.
Although the 620 new hybrids registered over five months is higher than the last full year before the tax was introduced, it is still relatively low considering there should be two years of pent-up demand. Rumman believes more could be done to help hybrid sales and that the tax should be reduced further or eliminated completely. Indeed, the anticipation of further changes could still be preventing some consumers from going ahead with a hybrid purchase.
Nevertheless, the policy is still supportive of what we believe is a growth segment and with unrest in neighbouring Syria and Lebanon, the earlier risk of being overlooked by carmakers for countries with more attractive policies on hybrids is reduced.