Clear-cut tax policy, a must for vehicle imports

by Lalin Fernandopulle

The unstable tax policy is not only a hit on the motor trade but also a loss to government revenue and a failure to address the growing congestion on city roads, motor trade and transportation experts said.

They said there has to be a clear cut policy on taxation for motor imports which is constantly fluctuating, creating uncertainty in the industry that has been adversely affected once again with the tax revision and poor monetary policy measures triggering a 36 percent drop in registration in the first three months this year compared to last year.

The dual purpose brand new sector was the worst affected with a 65 percent drop in registration during the period under review. Registration of dual purpose brand new vehicles slumped from 736 during the first three months last year to 257 in the corresponding period this year.

Fickle tax policy

Dual purpose commercial vehicles dropped 57 percent, motor cars brand new 57 percent, buses brand new 59 percent and three-wheelers slumped by 59 percent this year. New lorries recorded a marginal decline of nine percent this year.

Past Chairman, Ceylon Motor Traders Association, Tilak Gunasekera said the fickle tax policy in not helping the motor industry to grow and neither is it helping to boost revenue to the government coffers. This has created a waite and see attitude among importers who have put on hold orders as customers are not keen to purchase at exorbitantly high prices. Sri Lanka had the highest tax rates for motor vehicles in the world which was nearly two hundred percent making purchasing of a vehicle impossible to many.

The sharp depreciation of the Sri Lankan rupee against the US Dollar which is currently around 146, the Loan to Value ratio (LTV) currently at 70 percent and rise in interest rates for leasing from 10 to 15 percent have impacted vehicle sales negatively.

The rupee dipped by around 11 percent during the last 12 months from 129.98 in April of 2015. The rupee reached an all-time high of 149.20 in March of 2016 and a record low of 95.60 in December 2003. The LTV which was 70 percent in September last year was increased to 90 percent in October and again brought down to 70 percent in December last year. The LTV was 100 percent financed by finance and leasing companies.

Motor industry experts said the current vehicle valuation system done by the Finance Ministry and not by the Customs is time consuming and as a result companies have to pay demurrage. The government introduced a unit rate of excise duty for the vehicles on the basis of cubic centimeters (cc) that generate Rs. 20 billion to the government. The electric vehicle sector has not grown despite the hype about it due to the inadequate number of charging centres in the country and the distance a vehicle could travel when it has been recharged. Motor traders said a recharged car could run only up to around 70-80 kilometres and the time taken to recharge is not viable.

Hybrid vehicles are the future due to the eco friendly and cost effective factors, traders said.

Managing Director, Associated Motorways (AMW) Samantha Rajapaksa said the increase in duty on vehicles in the last budget, the high LTV and the depreciation of the rupee have hampered the motor trade industry severely.

Senior Professor, Department of Transportation and Logistics Management, University of Moratuwa, Prof. Amal Kumarage said the country has not worked out a transportation policy to manage public space and provide greater mobility to people.

He said we should move away from one off taxes on imports and registrations to user base taxes. The focus should be on users of vehicles and not ownership. It is not fair to tax users of vehicles in rural areas where there is adequate space for movement. Taxes should be collected in a way that efficiency and mobility in transportation is enhanced. Singapore and many Western countries provide incentives and subsidies for public transport at congested times and places. Vehicles should be taxed for occupying limited public space and not as a personal asset. Our transportation policy should be to provide a safe, cost effective and convenient transportation system, Dr. Kumarage said.

Managing Director, JB Securities, Murtaza Jafferjee said income should be taxed and not consumption behaviour. Taxes on vehicles should be similar to durable goods. Excessive taxing of vehicles when the remedy lies elsewhere is not a viable solution. Corrective taxation to manage demand is vital. Vehicles should be priced in a way that makes regular usage expensive and would discourage people from putting a vehicle on congested paths. It is vehicle usage and not ownership that should be taxed.

He said the Bus Rapid Transit System (BRTS) followed in Gujarat, India has helped improve quality of transport and ease congestion and delay in cities. Dedicated lanes for buses have smoothened vehicular movement. This is also a cost effective way to address the growing vehicle congestion in cities. Mobility provides greater economic opportunities. Creating greater mobility is vital for inclusive development, Jafferjee said. Sri Lanka's tax to GDP is currently around 12 percent. The target of the government is to raise it to around 18 percent. However, tax experts said the poor tax policy and compliance will not help achieve the target of reaching a tax to the GDP ratio of 18 percent.