Hybrid tax hike drives Sri Lanka’s motor dealers round the bend
Sri Lanka’s motor dealers numbering around 650 are facing a threat of losing their business and possible shut down of their car sale centres countrywide due to unbearable tax hike on hybrid vehicles, motor dealers complained.
The majority of car sales for dealers now come from hybrids.
Sampath Merenchige, President of the Vehicle Importers’ Association of Lanka told the Business Times that the increase in the 2015 interim budget’ on hybrid vehicles to 92 per cent of the total value of the vehicle means Sri Lanka is second only to India which imposes a 125 per cent tax on these vehicles.
Though the Finance Ministry allowed cars where Letters of Credit (LC) was opened before a January 29 tax hike to be brought into the country at the old rate, a Treasury circular has confined the benefit only to cars cleared from the port before February 28.
As a result, prices of hybrid cars awaiting clearance at the port have been increased, he complained.
He said that people were used to buy hybrid vehicles due to the low tax that prevailed earlier and the concessionary leasing facilities given by leasing and finance companies for these eco-friendly vehicles and discouraging their imports into Sri Lanka will kill the motor dealer industry.
Motor dealers are requesting the government to bring down the taxes on hybrids to at least 60 per cent to protect the industry, Mr. Merinchige said, adding that Finance Minister Ravi Karunanayake should take prompt action to remedy the situation.
The increased hybrid tax was imposed on all vehicle dealers, but individuals who placed their orders to buy hybrids through dealers making full or part payments will be given tax relief on providing a bank certification for their payments.
Individual importers noted that many of the vehicles are still in ships which will only reach the Hambantota port in March and they will have to pay the hybrid tax intended for car dealers.
The relief has been offered to individual owners who clear the cars before February 28 paying the full tax and a refund is given if the cars are registered before March 16th. The cars also cannot be transferred to any other person for four years, Finance Ministry sources said.
However, a senior Finance Ministry official said that the practice of importing hybrids by individuals has increased in the recent past andmany of them were used by certain car dealers to get the tax relief.
Some unscrupulous motor dealers have resorted to the practice of importing these vehicles opening LC’s under the names of individuals to evade taxes.
The Treasury has included a condition in the circular stating that individuals cannot transfer their vehicles for four years to prevent such manipulations.
This will effectively prevent the transfer of vehicles imported for individuals to motor dealers, he said adding that for genuine importers the government has given opportunities to import or purchase vehicles at previous tax rates subjected to conditions stipulated in the circular.
Former Chairman of the Ceylon Motor Traders Association (CMTA) Thilak Gunasekera said that in the last few years, government policy and duty changes in relation to vehicle imports have been inconsistent.
Vehicle import duty revisions were made in an ad hoc manner and, the customer is unaware of this, and refuses to pay the increased duty, he said adding that the local agent has to bear the additional cost in such instances.
He revealed that there was a significant disparity in the duty levied for a motor vehicle, with a gasoline engine and a hybrid vehicle of the same engine capacity.
Mahesh L. Ganwani, Director at Lekhraj Automobiles, told the Business Times all their customers would now have to pay an increased duty difference varying between Rs. 700,000 to Rs.1.2 million based on the type of vehicle.
The introduction of the zero depreciation for all ages of vehicles is impacting the dealers greatly and it violates the international World Trade Organisation norms, he pointed out.
The Minister of Finance should re-consider and revise the depreciation table to the old structure prior to the current revision, he emphasized.