Tax and It’s Effect on the Yachting IndustryJacob
Tax and its effect on yachts
Taxes can make or break an industry, and navigation is no different. It is easy to detect that those places in Asia where taxes are low for ships are also the places with the largest shipping industries. For example, Hong Kong currently has one of the largest shipping industries in Asia, and the city has zero ship tax. Other aspects, such as the ease of obtaining licenses and transferring ownership, are also important. The economic situation of a country also plays a role, of course, but currently we consider taxes to be one of the main problems preventing the nautical industry from reaching its potential in many parts of Asia.
One of the most important lessons that the shipping industry has learned so far from luxury taxes was in the 1990s in the United States, when the Bush administration imposed a tax on luxury yachts, private jets, jewelry, and other items. deluxe. An additional 10% tax was charged on yachts over USD 100,000. This seemed like an excellent idea at the time. After all, why not charge the rich for their luxury items? Right? The general public applauded the idea, delighted that someone was finally taxing the wealthy for their expensive toys.
At first, the government enjoyed the situation, which painted them as a modern Robin Hood on the political scene. They estimated that the newly imposed tax revenue would generate billions of dollars in the next 5 years. It seemed to be a win-win situation that would solve all his problems. Surely the wealthy could pay 10% more for their luxuries. In the worst case, the government predicted that sales could temporarily drop slightly and then recover.
What the government did not understand was that although many of the yacht buyers and owners were quite wealthy, there were also a large number of middle class boaters who could not afford the additional tax. Those affected by the tax were mainly ordinary people who worked and ran the industry. Boat builders, dealers and agents, maintenance workers, engineers, mechanics, surveyors, crew members and suppliers of every imaginable type of navigation equipment. All combined, it was a great industry.
Potential boat buyers, unwilling to pay the additional tax, may make the simple decision not to buy a boat. They had other alternatives, they could go on vacation, buy a country house or simply cross the border and buy a luxury yacht in another country.
But the workers who form the backbone of the nautical industry had no alternative. When buyers suddenly stopped buying boats, the industry’s revenue stopped. Suddenly, distributors, supplier factories, maintenance yards and any other shipping related company were forced to lay off their staff, and the industry suffered mass unemployment.
As for the government, instead of earning more tax revenue, it earned almost a tenth of what it used to earn when tax rates were lower. Furthermore, the government had to cover the extensive welfare costs for those unemployed in the resulting financial crisis. Suddenly, the burgeoning shipping industry saw massive revenue losses, and bankruptcies became commonplace.
The government quickly took the lesson seriously. After a few years, before the entire sailing industry and luxury sailing culture could end, the new tax was canceled. The government restored taxes to previous levels and encouraged consumers to buy luxury goods in the country to help the industry grow and prosper once again.
This experience served as an important lesson learned in the luxury tax, particularly in the shipping industry. It became clear that the amount of work, work, and experience it takes to make a luxury product like a ship creates jobs in many other industries. It doesn’t stop there either. Boat maintenance and repair is a permanent source of job creation that helps a country’s economy in no small way. In this way, a yacht creates more employment than other luxury products, such as expensive paint or jewelry. Even a car doesn’t require as much professionalism and a full-time crew to maintain it as is the case with a yacht.
Many countries in Asia still do not understand this concept. In many cases, the political situation in a country prohibits politicians from deducting the luxury tax because it makes them appear to be favoring the wealthy. India is a country that has simply refused to realize its potential to start a boating industry. The government has yet to take concrete steps to create a proper shipping industry.
India imposes a total tax of 47.8% on luxury boats, which is a great barrier to mass consumption. Let’s say you have made it in the business world and have worked hard. He travels all over the world and thinks he should also buy a small private yacht to enjoy the great ocean at home. So he decides to buy a pot worth USD 150,000. This is much cheaper than many cars currently on Indian roads. You are a good patriotic citizen and would like to pay the full tax. He then pays the government 47.8%, which amounts to $ 71,700, and gets his ship registered. But when you think about it, you start to wonder what the tax is for. What is the government really doing to make the shipping industry justify the tax? They do not provide mooring for your yacht, and they do not support yacht clubs in India. They do not provide protected water, security or any type of infrastructure or installation to help the industry. In summary, 47.8% is not used to help the industry in any way, you just paid taxes for nothing. If you pay the luxury tax in China, you will at least get clean water shipyards and marina club facilities because the government helped build a navigation infrastructure together with private companies. In India, the government does not provide aid, despite the heavy tax. Compare this to a place like Hong Kong, where you don’t pay taxes, but get all the facilities a boater might need: safe waters, access to a 5-star sports club docking center if you’re willing to pay, or alternatively mooring Much cheaper government, where you would get water and electricity, special fuel stations for private boats, markets to buy products related to navigation, mechanics, shipyards, professional boat crews and anything else you may need.
In some cases, the high import tax makes sense. If a government wants to protect its country’s farmers from cheaper food imports that would compete with local businesses, of course some form of regulation is necessary to protect the interests of the local economy. Or, in the case of the manufacturing sector, it would make sense to impose a high tax on clothing imports to protect local designers and brands. But economists still argue that high import taxes on any product is a bad idea, as it won’t create a need for the country’s local manufacturers to innovate or become more efficient in their industries. However, an import tax is sometimes necessary to protect the country’s own manufacturing industry, especially if some countries use unscrupulous forms of manufacturing to reduce costs, such as violating human rights, paying less to workers, or using the child labor.
For this same reason, it makes no sense for a government to charge a high import tax on a product for which there is no local manufacturing industry in the country. For example, yachts in India. The recreational boating industry in India is almost non-existent. The government has nothing to lose by lowering its taxes and much to gain. This creates the impression that the government is unwilling to make an effort to create new industries, jobs, and infrastructure. It seems they are only interested in looking good on the surface when they see the rich taxed.
Some politicians in Asia argue that there is a more important job to look after than the shipping industry. When there is so much poverty in a country, it might be wiser and more humane to solve that problem rather than provide infrastructure for the hobbies of the wealthy like sailing. However, this argument does not make sense. Creating jobs and promoting industry is the absolute best way to eradicate poverty and empower the poor. While it is true that the government may have a limited budget to provide specialized infrastructure, such as what is required to navigate, there are solutions. A good way to start would simply be to provide a space for the private sector to build the navigation infrastructure and create a consumer friendly tax system that powers the industry.
By imposing unnecessary import tariffs, Asian governments are also hurting their own export industry. Countries often react to each other’s tax regulations and are embroiled in ‘tax wars’. This stops growth for everyone, and the consumer is the biggest loser at the end of the day. Perhaps the reduction in taxes on luxury yachts could also be used by governments to develop their foreign trade relations.
For starters, many experts in the field of sailing believe that yachts should not be classified as luxury products. This would solve many of the industry’s current tax problems and could create a healthy amount of employment.
As mentioned earlier, many politicians in Asia argue that they have more urgent and important things to take care of, rather than focus on creating a shipping industry. I must tell you that when they prepare a feast, they boil the pasta, fry the meat and bake the dessert at the same time. If you do it one by one, it would take forever to finish.
I hope you found this article interesting.