Sri Lanka motor trade hits a snag
View(s):The motor trade in Sri Lanka is in a troublesome period once again with the usual short term and ad-hoc policy changes which hurt the industry in a big way. The adverse policies also have created a “no-level playing field” in the market whilst certain sectors especially used car imports continue to benefit.
The relevant government institutions fail to recognise franchised motor dealers’ contribution to the economy, whilst the policies adapted and implemented are favouring only certain segments when compared as a whole in the industry, specifically used car imports.
This is basically creating a total imbalance in the market. The auto industry on the whole is a very volatile market. Brand new vehicle import agents invest a lot of money in terms of maintaining showrooms and after sales service, spare parts, backups, etc.
It is not just selling cars; it is an industry on the whole. But unfortunately the policymakers do not see it that way.
The government must also understand that the import of brand new vehicles is a different industry altogether representing the manufacturer itself. Further the present valuation system adapted for imported used vehicles is far more detrimental to the government and the lost revenue is immense.
This would be very evident if the authorities carry out a proper investigation and analyse the market trend for the last 18 months. It is very unfortunate that in spite of bringing this to the attention of relevant authorities; neither hearing nor consideration was given to the legitimate importers of brand new vehicles.
In addition to the chaotic tax policies the industry further suffered by the restriction of credit facility of the loan-to-value (LTV) ratio which is 50 per cent for motor cars/SUVs, 70 per cent for motor cycles and 25 per cent for three wheelers. This has dampened the demand from customers to purchase at least a low-end motor vehicle through vehicle financing.
Several duty revisions to correct anomalies in the duty structure has been be enforced and increase the age limit for importing lorries and refrigerated trucks with a capacity of over 5 metric tonnes, to be extended to 10 years to support local industries.
Three-point seat belts will be made compulsory for motor cars to ensure road safety as an initial step to encourage safety. These measures are welcomed by motor traders while disagreeing with makeshift policies.
Motor traders were also perturbed by the government’s directive in the payment of Vehicle Entitlement Fee (VEF). The VEF was paid at the time of opening of Letter of Credits (LCs), to the banks earlier. But the government has issued a directive to pay this fee to the Sri Lanka Customs at the time of clearance of the vehicle. Upon payment a certificate with details of the imported vehicle will be issued.
There are over six million vehicles in the country and there are many old vehicles which creates environmental problems. But the government’s proposal to provide tax incentive on exporting vehicles which are more than five years old is yet to be implemented. The luxury and semi-luxury motor vehicle tax has been revised. The Economic Service Charge (ESC) has been reduced to Rs.12.5 million per quarter with the ESC being charged at the point of Customs on the importation of motor vehicles.
The industry cannot suffer or close down but needs to find a mechanism for sustenance of the stakeholders in order to safeguard it as thousands of people depend on this industry. The new challenges such as the import of the zero mileage cars by used car channels with better options and government’s consideration for offering discounts for the valuation of used cars have become a major threat to the professionally-set up franchise holders.
In addition to this the preference given in the new tax structure for less than 1500 cc cars, a segment predominantly held by the used car products should be of concern to every one in the franchised motor dealer segment. The present taxation is relatively high but if it is consistent it is easy to manage whereas, when it keeps on changing there is an issue in focusing attention on stable pricing.
The government has to regulate certain things. Those regulations and restrictions will probably be short-lived and in the meantime, they should bring in a more formal and acceptable level of taxation for vehicles which will happen in the medium term. Motor traders will have to go through a period of a certain amount of restrictions based on the industry because of various factors like the economy, requirement of taxes and curtailing finance that have been given to the motor industry.
Figures showed that the car sector would “find life ever more challenging” in the coming months, with the scale of the decline catching the industry by surprise. New car sales in the UK plummeted by over 40 per cent after changes in vehicle tax rates took their toll on the auto trade in Sri Lanka. (The writer is the Chairman – Ceylon Motor Traders Association (CMTA) and also the Director-Sales and Marketing of Senok Trade Combine Pvt Ltd).