Reduction in import duty:

Second-hand vehicle buyers yet to benefit

By Manjula Fernando

The total duty and tax payable to Customs
(Reconditioned)
Small cars less than 990cc - Rs. 1.1m - 1.4m
Cars less than 1290 cc - Rs. 1.3m - Rs. 1.5m
Cars less than 1490 cc - Rs. 1.2m to 2.6m
Vans diesel (approx.) - Rs. 2.6m
Jeeps and SUVs less than 2360cc - Rs. 2.9m - Rs. 4.2m
The rate is the average for popular brands like Toyota/Nissan

Aspiring vehicle buyers who expected a drastic price slash in the reconditioned and used vehicle market after the duty concession by the Government in June are still waiting for the miracle to happen.

It has been five months since the new tariff regime was introduced cutting down the duty and other levies imposed at the Customs by half.

Despite the highly appreciated boon, the prices of reconditioned and used vehicles remain unchanged, if not marked an upward in the price board much to the disappointment of the middle-class buyers.

“One reason is the sudden surge in the demand and the rush by Lankan vehicle importers at Japanese auctions to grab every popular brand.

The rush had caused the prices to shoot up. Those who buy at high rates have to sell at high prices too,” a car dealer in Nugegoda told Sunday Observer explaining why the prices have remained high despite the tax benefit.

With the new tariff revision the importers expected a sudden increase in demand here - their reaction was to order used vehicles in bulk.

                 Number of vehicles imported

Reconditioned	January	June	July	August	September	October

Cars		56	526    1,648	2,760	3,125		 3,139
Vans		 6	 74	 276	  353	  320		   358
Jeeps/Cabs	36	 34	 128	  155	  106		   127
M/bicycles	11	319	 359	1,305	  118		   422


Brand new

Cars		149	171	638	 1,085	1,521		2,576
Vans		  2	 11	 16	    14	   26		   30
Jeeps/Cabs	 62	 76	143	   142	  158		  173
M/Bicycles    8,362  15,011  22,012	23,919 22,558	       20,659

Source: Customs Department

He said not the seasoned and authentic importers but new people who had surfaced with the idea of exploiting the situation have created chaos. “Their presence in car auctions overseas has left other buyers dumb-founded.”

This claim was corroborated by the Customs Department officials and a number of vehicle importers.

Going by these claims, it seems that the benefit of Sri Lankan tax concession has gone to Japanese auctioneers. But it is also claimed that the importers have stretched their profit margins in order to keep the prices stable hoping that there will be a ‘reverse’ in the tax regime through the 2011 Budget.

Some of the car importers in their rush to import as many vehicles as possible have ordered more than what they could bargain for. Already there are several shipments at the port waiting clearance. “These people may have to sell at cost since the Government is not in a mood to revise the reduced rates during the upcoming budget,” a Customs official said.

However, the Customs Department seems to have got their share of the advantage by the Government’s move. The Customs revenue has skyrocketed during the four months after the new tax regime came into operation.

“There was a four-fold increase in the Customs revenue from vehicle imports in October as against June 2010,” Customs Motor Vehicles Unit Head, K. Premanath said.

This was a record income for the Unit and the number of vehicles imported shows a steady increase from January with 15,000 to August, September and October 30,000, 42,000 and 40,000 respectively.

The revenue collected from vehicle imports for the months of June, July, August, September and October were Rs. 3.5 billion, Rs. 6.8 billion, Rs. 8.9 billion, Rs. 10.6 billion and Rs. 14.7 billion respectively. This is a major increase when compared to the revenue collected in January Rs. 1.8 billion.

Premanath said there was a surge in vehicle imports in brand new and reconditioned categories after the June tax revision.

Without the anticipated price slash in the reconditioned market some of the buyers have shifted their attention to brand new budget cars in the market, the reason being that brand new car prices have dropped almost by half following the new reduced taxes.

The car agents said that there is a marked increase in their sales during the past few months. The highest demand was for budget and economy cars.

A sales person in a used car dealer’s shop said their sales dropped within the first month after the new tax regime was introduced. But since the reconditioned market did not indicate a sufficient drop in prices, their sales bounced back.

The average sale for this particular used car dealer had been 25-30 vehicles a month before June. Soon after the new tax regime was introduced this had dropped to less than 20. “We sell more than 30 used vehicles a month now.

The vehicle importers’ decision to manipulate the prices seems to have boomeranged.”

The news of the new tax regime worried mostly the used car dealers.

They feared the drop in import taxes will be an incentive for the people to go for brand new and reconditioned vehicles instead of locally used cars.

But the actual story turned out to be a different one.

Clarifying that there had not been any hidden charges Premanath said “the amounts payable to the Customs have dropped hugely after the new tax regime was introduced.”

“We calculate the duty and other levies by depreciating the Agent’s value. That’s way the tax for a particular vehicle category remains the same.”

The total duty and tax payable to Customs
 		(Reconditioned)
Small cars less than 990cc	- Rs. 1.1m - 1.4m
Cars less than 1290 cc 		- Rs. 1.3m - Rs. 1.5m
Cars less than 1490 cc	 	- Rs. 1.2m to 2.6m
Vans diesel (approx.) 		- Rs. 2.6m
Jeeps and SUVs less than 2360cc - Rs. 2.9m - Rs. 4.2m
The rate is the average for popular brands 
like Toyota/Nissan

For instance to get a Toyota Vitz (1290cc - year 2006) cleared at the Customs counter the importer should pay between Rs. 1.3 million - Rs. 1.5 million now.

This includes all taxes and import duty.

The tax component for this type of a car was nearly double this amount before June 2010.

Nevertheless, a close survey of the market prices shows no significant reduction in reconditioned vehicle prices.

As feared, it seems the import tax concession has not trickled down to the end consumer but instead served to fatten the profit margins of middlemen here and abroad.