Motor trade resurgence after re-adjusting taxes
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While there is a general view that the tax hike has impacted on Sri Lanka’s motor trade and vehicle imports, the country is beginning to reap benefits of easing traffic congestion in the near future as a result of declining car imports.
Given the current grave traffic situation and the massive contribution of the automotive trade to our economy, there is a doubt in achieving the expected revenue from the 2016 and 2017 budget’s tax hike.
Still the government expects some sort of reform to occur in the motor trade. This government’s push to increase vehicle import taxes supposedly serves a twofold purpose: one, to increase tax revenue to and two, to help ease traffic congestion.
Higher tax means higher collections, but according to the Finance Ministry Annual Report, revenue from vehicle imports has come down by 29.2 per cent to Rs.186.5 billion in 2016 from Rs.263.5 billion in 2015.
This was mainly due to the drop in vehicle imports by 28 percent (motor cars declined by 58.7 per cent, passenger van, and buses by 40.7 per cent, goods transport vehicles by 27.1 per cent, three wheelers by 64.1 per cent, etc) in 2016 as result of the increased excise duty on vehicles specially on cars during this period.
The government’s policy towards discouraging imports through the introduction of new valuation method and imposing a maximum loan to value ratio (LTV) on loans and advances has contributed immensely to the drop in vehicle imports.
If buyers decide the taxes are too high and slide down the scale, eventually ending up with used cars, that cash roll-over prize might be smaller than the government is expecting for.
Whether or not people who have cars will buy a brand new car or stick with their old one, they will still contribute to traffic.
One might argue that you are still easing traffic by depressing the used car market, but the used market is very much a buyer’s market, with an excess of cars up on sale at dealers show rooms.
This surplus could simply attract new buyers until the market re-adjusts to the new taxes, minimising any possible drop in ‘new’ registrations of vehicles.
On May 26, the government introduced a new Unit Rate Tax that will affect vehicle prices in the country according to the engine capacity of each vehicle. This vehicle tax is now causing many controversies among the ordinary car buyers and sellers.
The price of passenger vehicles has increased by as much as 133 per cent with the introduction of the Unit Tax. This newly introduced tax has resulted in a price hike on vehicles with an engine capacity of more than 1000 CC (1.0 L) while vehicles that have an internal combustion engine with less than 1000 CC have seen a tax rate reduction in the local market.
However, the reduction of taxes for vehicles with an engine less than 1000 CC has not affected three-wheelers (auto rickshaws) which have seen a tax hike of up to Rs. 400,000 in the Sri Lankan market.
As a result three-wheeler imports have dropped by around 50 per cent which is a very good thing for the country.
Young three-wheeler drivers should be rehabilitated and employed in productive vocations as they have become a menace to the country at present. The consequences of youngsters getting into three-wheeler driving is disastrous , as some of them are getting involved with nefarious activities such as giving a helping hand to drug peddlers, prostitutes, and so on.
A strong people’s movement is essential against the three-wheeler trade which has robbed the youth’s economic potential and is on the verge of killing vocational training in the country.
The proposal to set 88 motor vehicle standards of Supplemental Restraint System (SRS- warning lights), air bags, anti-skid Braking System (ABS) should be implemented as soon as possible.
Three point seat belts should also be made compulsory for motor cars to ensure the road safety as an initial step to encourage safety in accordance with the 2017 budget proposal.
There are over six million vehicles in the country and there are many old vehicles which creates environmental problems.
Sri Lanka should seriously consider the possibility of removing 15 years and over un-roadworthy vehicles from the roads to meet more efficient transportation needs of urban areas. Old vehicles have been one of the major causes for road traffic accidents, vehicular congestion and air pollution.
The government should devise a scheme to persuade franchised motor vehicle importers to buy old vehicles for scrap so that they could be removed from the roads or to exchange the old one with a new model.
There should be a mechanism to encourage consumers to opt for brand new vehicles and increase duty/tax band for reconditioned vehicles. Sri Lanka opened the floodgates to re-conditioned vehicle imports from Japan and some other countries, regardless of the age of the vehicles in the late 1970s. (The writer is a former chairman at the Ceylon Motor Traders Association)