Sri Lanka’s vehicle tax collection to fall dramatically
Sri Lanka’s revenue collection from taxes on vehicle imports this year is likely to fall dramatically owing to motor traders’ current stance of reducing imports due to a drop in sales, market analysts predicted. Finance Minister Ravi Karunanayake has been quoted as saying that tax revenue in 2016 from vehicle imports is expected to reach Rs. 280 billion this year from Rs. 230 billion in 2015. However a JB Securities market research report reveals that, based on the current trend of lowering vehicle import revenue collections from custom duties will be around Rs. 140-150 billion this year. The government’s ad hoc taxation policy depends on whether the country was facing a balance of payment crisis or the Treasury has a revenue shortfall or reacting to excessive traffic on the road.
Due to policy unpredictability motor traders have adopted a wait and see stance, the research study shows stating that when duties are reduced there is a surge of demand. Consumers, it said, are not interested in buying vehicles when prices are up and at a time when the vehicle leasing facility has been reduced to 70 per cent from 90 per cent of the cost of the vehicle. At present there is a lull in vehicle sales. Imports are expected to come down as some motor traders have reduced or stopped the opening of letters of credit in banks to import vehicles by placing direct orders with its foreign principles, the report said.
Thus one cannot expect policy makers to neither relax the high tariffs imposed on vehicle imports nor relax the 70 per cent rule as it would worsen the Balance of Payment (BOP) crisis, a senior government official said. The only option available for the government was to increase the tax on diesel which totals around Rs. 15.50 per litre comparing to taxes on petrol totalling Rs. 65.50, he added. However the Treasury will take every possible step to maintain fiscal consolidation by speedily implementing the Prime Minister’s proposal of a VAT increase to 15 per cent from 11 per cent and increasing concessionary rates of corporate taxes to 17.5 per cent.