A pragmatic step

The recent excise duty and surcharge cut on motor vehicle imports was welcomed by all motorists and the public. It will enable more people to purchase new vehicles, as vehicle prices will go down drastically, especially for lower engine capacities. The 183 percent tax on small engine cars is likely to come down to around 90 percent, effectively halving the price. Earlier, a 1.6 litre car priced internationally at US$ 12,000-14,000 was sold locally at nearly Rs. 7 million. A businessman looking for a luxury car had to fork out more than Rs.20 million to buy a premium Sedan or SUV even from the lowest step of the (German/British) luxury ladder. The new duty/tax structure will afford buyers a considerable saving on these prices.

But there are many more steps that have to be taken in this regard.

The fact is that for far too long, this country has been following wrong policies and practices in this sphere. One of the most glaring factors is the local price disparity between petrol and diesel and also between the vehicles that use these fuels.

All Sri Lankan (and most Asian) Governments subsidised diesel for the sake of passenger and goods transport services, which mainly use diesel. The other simultaneous step was the imposition of extremely high duties on diesel passenger vehicles (cars and SUVs), apart from buses. Under the old tax and duty structure, cumulative taxes on a diesel motor car amounted to 550 percent at the point of sale, which was 250 percent higher than on a similar capacity petrol vehicle. This should now come down to around 300 per cent for diesels, which is still three times the value of the vehicle.

The most plausible explanation for this line of thinking is that the authorities wanted to prevent the ‘misuse’ of the diesel subsidy by affluent motorists. Those who buy petrol anyway subsidise the cost of diesel made available to passenger and goods operators, on top of the already lower diesel prices. But is this no longer viable in today’s world? No economy can hope to maintain subsidies for ever. Subsidies are a huge drain on the economy - petrol sales can only help foot part of the bill and the rest has to come from the Exchequer. That is not sustainable in the long-term.

There should be total revision of the tax structure on diesel vehicles, which is clearly out of sync with the rest of the world. It no longer makes sense to impose very high taxes on diesel vehicles as pump prices are only marginally lower. As mentioned previously, the whole idea of imposing high duties on diesel vehicles was to prevent private motorists from enjoying lower prices at the pumps.

On the other hand, today’s diesel vehicles are ultra-clean and much more fuel efficient. Kilometre-per-kilometre, diesel outperform petrol easily. In other words, some diesel cars do an amazing 1,000 kilometres on one full tank, whereas similar-engined petrol car would do around 600 Km. Imagine the savings if most of our cars were diesel-powered, as in Europe and increasingly, India, where taxes on both varieties are more or less equal.

All old arguments against diesel vehicles no longer hold true. They are generally reviled in this country as an expensive, inefficient and pollution inducing proposition. On the other hand, today’s diesel engines are cleaner, more silent, more fuel efficient and more long lasting than ever.

To give just one example from a prominent European manufacturer, a Mercedes Benz C350 (that is a six cylinder 3.5 litre engine) petrol car generally consumes 14 litres of diesel per 100 Km, whereas its diesel equivalent takes just 10 litres to cover the same distance. That is a saving of four litres and quite a lot of money. One may note that this is a so-called high capacity engine - savings with smaller engines are even greater. In other words, a diesel engined car will go much farther than its petrol equivalent with the corresponding amount of fuel.

Now take this scenario to its ideal and logical conclusion: What if at least 80 per cent of modern vehicles on Sri Lankan roads were diesel powered? One can just imagine the fuel and cost savings.

A popular misconception is that diesel engines are ‘dirty’ and cause pollution. But facts prove otherwise. As in the above example, a C350 petrol outputs at least 235 grams of Carbon Dioxide per kilometre, whereas a C350 diesel outputs only around 190 grams. The story is the same for all modern diesels. Thus it is petrol engines which actually cause more pollution. But these facts are lost on our motoring authorities.

We also hope that there will be deeper duty cuts on hybrid vehicles (cars with petrol or diesel engines aided by electric batteries and motors) and totally electric vehicles. Most other countries grant considerable tax concessions for the import and purchase of these vehicles which can save even more fuel. The Government must seriously consider lowering duties for diesels and hybrids in the light of recent developments. The local manufacture of such vehicles in collaboration with established industry leaders to should be encouraged to further reduce our import bills. More manufacturers should follow the example set by Ssangyong and Micro, which have a line of locally assembled diesel and petrol vehicles at affordable prices.

Another factor that should be taken into consideration by our planners is the unrestricted import of reconditioned cars, a glorified term for used cars. These cars have been used in another country for three or more years and are not in the best mechanical condition. Worse, some of them are imported in an ‘as-is’ condition, without any modifications or repairs. It would be far better to phase out such imports and reduce duties on brand new vehicles further to make them even more affordable. That will benefit not only car buyers but also the environment. It will also lessen the used spare parts import bill as brand new vehicles usually do not require major repairs for at least for 5-6 years.

The move to slash duties and taxes will also help those looking to buy a second hand car or even upgrade their existing car. Used cars were ridiculously overpriced in the light of high vehicle duties (even a 12-year-old car usually cost as much as Rs. 1.4 million). Those who sold their existing car were usually unable to go for a new car in their engine bracket and had to settle again for a used car, perhaps with a smaller engine. This move will give them hope.

Of course, the new measures will increase the vehicle population. Our road network must be geared to face the onslaught. The existing roads must be repaired and widened where possible. The new expressways will also take some weight off the existing road system. More facilities should be made available for parking as well.

But why does everyone want to buy a motor vehicle, at least a motorcycle? Personal enhancement and prestige do play a part, but the bigger reasons are more obvious. The main reason is that Sri Lanka’s public transport system is still not up to the mark. The railway system, which has seen rapid development over the last few years, too cannot cope with the demand. In this context, the newly opened Airport Express points the way forward.

And that is a mass transit system that is fast, efficient, clean and punctual. That could be an inducement for many car owners to leave their cars at home or at a designated parking spot. A metro, or an underground train system is vital for Colombo and key cities to afford rapid transport and to ease traffic congestion. The bus service too could be improved with more semi-luxury and A/C buses.

Driving people away from their cars is not an easy task. Yet, many countries have achieved a fair degree of success through the operation of good public transport systems. Even taking 100 cars off the road per day can make a difference in terms of fuel consumption and pollution.

The other requirement is a reliable taxi service. There are a few radio taxi services, but they can never match the level of a good taxi service as seen in Singapore, Tokyo, London or New York. Sri Lanka needs an efficient, frequent, reliable and above all, affordable islandwide four-wheeled metered taxi service. It should be as simple as hailing one on the street- just as with three wheelers today. Perhaps a locally manufactured car can be used to establish such a taxi service, to save foreign exchange as well.

Cycling should also be popularised. Unfortunately, Sri Lanka does not have a cycling culture. Many other countries have designated bicycle lanes and parking slots. Riding a bicycle on our roads is a deadly business. It is not too late to think about having cycling lanes - and laws, such as the use of helmets and other safety gear.

A cycling culture does indeed have the power to transform the transport scene. Just like walking, cycling is healthy and saves fuel and money. Our transport planners and lawmakers must give serious thought to this issue aiming at a long term solution. Motorcycles too are very popular, but the authorities must encourage the purchase and use of all-electric bikes and scooters that could help save fossil fuels.

A start has now been made with the decision to slash taxes on vehicles and policy planners must ponder these issues further to take decisions that will benefit the motoring fraternity and the public while attracting more revenue to the coffers.