The new vehicle taxation formula based on engine capacity has opened avenues for motor traders to import more small cars less than 1000cc engine capacity, Finance Ministry data revealed. The new tax structure on vehicles was introduced under the Budget-2018 presented by Minister Mangala Samaraweera scrapping the calculation of Excise Duty on vehicles on the [...]

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Vehicle taxation formula jacks up car imports

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The new vehicle taxation formula based on engine capacity has opened avenues for motor traders to import more small cars less than 1000cc engine capacity, Finance Ministry data revealed.

The new tax structure on vehicles was introduced under the Budget-2018 presented by Minister Mangala Samaraweera scrapping the calculation of Excise Duty on vehicles on the basis of Cost, Insurance and Freight (CIF) value.

According official statistics, 45000 vehicles with 1000cc engine capacity were imported from January to May. Each month about 4500 vehicles have been imported. At least one thousand 1000cc vans have been imported each month.

The expenditure for car imports has doubled to US$666 million in the first five months of this year from $316 million during the same period last year.

The foreign exchange outflow has increased during this period and the Central Bank was compelled to introduce a raft of measures to tackle this situation.

The government on the one hand has clamped small car imports by increasing excise duty but on the other hand opened the door for super luxury vehicles to enter the local market with the removal of ad-valorem rate through the 2018 budget

Explaining the negative side of the engine capacity based taxation formula of 2018 budget, an economic expert said that it is not fair to charge the same duty for a 2,000 cc Korean-made vehicle produced and purchased for $20,000 and a European manufactured one with same engine capacity purchased at $35,000.

The government has lost at least Rs.15 billion in tax revenue under these circumstances; he said adding that the additional outflow of foreign exchange on an expensive vehicle does not bring in a sufficient proportion of inflows to state revenue.

As a short term measure of curtailing vehicle imports the Government suspended the import of vehicles using duty slashed permits while increasing the value ratio for credit facilities being given to car buyers by finance and leasing companies.

Most of the luxury cars and SUVs are brought in using duty concession permits which are openly sold by permit holders.

According to Finance Ministry statistics, around 60 per cent of all car imports were financed through lending institutions during the first six months of this year.

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