Crisis in the motor trade, job losses feared
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Sri Lanka’s motor trade is on the verge of a crisis triggering fears of job losses for hundreds of people currently employed directly and indirectly in the industry.
As car sales plunged to over 50 per cent compared to previous years, a potential “collapse” in the vehicle import business is evident if the government attempts to extract more taxes from the sector.
The industry has been reeling from the effects of the economic downturn and motor taxation changes brought in three consecutive budgets since 2015.
Vehicle market analysts have issued a gloomy, unprecedented and blunt assessment of the crisis after new figures showed a significant fall in new car registrations in February 2017 alone.
According to Motor Traffic Department data, Sri Lanka vehicle registrations in February fell sharply on the back of measures to tighten credit, with motor car registrations recording 2,148 units, down from 3,079 units the previous month.
The number of customers visiting vehicle showrooms has come down to near zero; most visitors to car sales outlets walking away without buying vehicles due to high prices.
Potential buyers have found it difficult to obtain car leasing facilities as the government has limited loans to a 50 per cent.
According to vehicle market analysts, “the current vehicle taxation policy is detrimental towards greater inclusive development and impedes higher economic efficiency by distorting the market for vehicles. Continuing with such a policy will have electoral repercussions”.
It is highly unnecessary for the government to introduce a distorted vehicle taxation system with the aim of widening the tax net. What they should do is to make the tax collection more efficient and simplify the complex taxes as suggested by the International monetary Fund (IMF).
Taxpayers should not be deprived of purchasing vehicles of their choice as they contribute their share towards strengthening the economy.
The Inland Revenue Department’s scheme (since 2007) of issuing Gold and Silver privileged cards as an incentive to high-net and consistent taxpayers for regular compliance has become a worthless exercise.
Though these cards guarantee special treatment from key government bodies like Customs, Police and the airport as well as several other concessions, including leasing facilities for purchase of vehicles and office equipment at reduced interest rates from People’s Bank and the Bank of Ceylon, these don’t exist at present.
Sri Lanka has operated a feudal style tax system where private citizens were taxed as much 270 per cent when buying a car and legislators who made the tax laws in the country were exempt while state workers who collected the taxes paid only part of the taxes.
The Government has re-introduced the vehicle permit system which was suspended by them earlier. Public officers and executive officers attached to the state corporations and other statutory boards, doctors and legal officers attached to the Government service, university vice chancellors, university lecturers and executive grade officers attached to university non-academic staff are entitled to receive vehicle permits under this concessionary basis vehicle permit scheme.
The face value of each concessionary vehicle permit is US$ 30,000, increased from $25,000. A permit holder is entitled to a 50 per cent tax waiver of the total tax to be paid for his or her selected vehicle.
But these vehicle permits cannot be transferred to others like on previous occasions. It was a good move of the government although it has affected the car imports to great extent.
Permits were used for open trading with no regulations where some brokers and motor traders benefit with no control mechanism to control it.
The permit holder then sold the permit ranging between Rs.1,500,000 to Rs.1,700,000 for which this individual cannot get another vehicle. The broker kept a margin of around Rs.100,000 and sold it to the trader with no taxes.
The trader gets a tax concession of around 150 per cent. He then imports the vehicle keeping a huge margin and sells it in the open market.
The margin could vary from Rs.500,000 to Rs.2 million depending on the make and model of the imported vehicle.
During the last few years over 40,000 permits have been utilised and over 80 per cent of it has been traded to non-permit holders. This has resulted in $1 billion of foreign currency outflow and Rs. 40 billion of unaccounted profits to vehicle dealers without any taxation.
According to official data government had lost Rs. 147 billion in revenue from 2012 to August 2015 due to this practice. Finance Ministry data showed that 27,33,350 vehicles have been imported to the country from 2012 to August last year with the concessionary permits.
The Government has earned only Rs. 63.8 billion from those imports. However immediately it has changed its strict stance by granting members of parliament vehicle permits during the same year. These inconsistent policies have affected the motor trade badly.
(The writer is a former Chairman of the Ceylon Motor Traders Association)