Slowdown of SL motor vehicle sales by govt – Fitch
View(s):Growth in motor vehicle sales in Sri Lanka, and particularly in small cars, will slow in 2016 because of higher taxes as well as a weaker currency propelling vehicle prices upwards, according to international ratings agency Fitch.The ratings agency also noted, “Tighter regulation on vehicle loans will also impact affordability for buyers”.This, Fitch signalled, is indicative of a long-term plan to arrest foreign currency outflows while also easing traffic congestion. “Over the longer term, the government’s vehicle policies are likely to be shaped by the outflow of foreign exchange and traffic congestion.
Sri Lanka’s international reserves fell to US$ 6.5 billion at end ¬ August 2015 from $8.2 billion at end ¬2014. The country’s vehicle imports in the first eight months of 2015 increased 90 per cent from a year earlier to $905 million. Vehicle imports accounted for 7.2 per cent of total imports, up from 4.6 per cent in 2014. Traffic congestion in the Western Province, where the majority of vehicles are registered, is likely to increase further and experts expect the average commuting speed in Colombo, which is currently 12km per hour, to halve by 2020, highlighting the need for proper traffic planning”.
Further, Fitch also commented that “(registrations) of new vehicles increased 375 per cent in the first ten months of 2015 compared with registrations for the full year of 2014, data from JB Securities (Pvt) Ltd, which tracks Sri Lanka’s motor vehicle registrations, showed. Around 93 per cent of the new registrations were for small cars”.It also added, “The sharp increase followed a reduction in total import taxes on small cars (with standard engine capacities of less than 1000cc) in February 2015 to 155 per cent of cost, insurance and freight value (CIF), from 173 per cent. A wage increase for civil servants and lower fuel prices in 2015 also spurred demand for small cars, which are more fuel ¬efficient and affordable. In recent months, however, the Sri Lankan rupee has depreciated (it fell 5 per cent in September 2015), raising the local¬ currency prices of cars, which are all imported.
In September 2015 the Central Bank of Sri Lanka imposed a cap on the loan¬ to ¬value ratio for vehicle loans at 70 per cent.The limit is due to come into effect in December 2015, which will constrain affordability”.Additionally, Fitch indicated that the “government in its budget for 2016 proposed to increase taxes on vehicles, including small cars, which will increase to around 173 per cent of CIF. In 2012, small car registrations more than halved after the government increased taxes on small cars to 200 per cent from 120 per cent of CIF. New regulation introduced in October 2015 aimed at arresting under invoicing of used vehicles will change the valuation method adopted for taxation of used cars, but will not impact new car importers”.
(JH)