Government mulls replacing vehicle tax formula 3 mths after its introduction
Almost three months after presenting the Blue-Green budget in Parliament, the government is mulling to replace the current engine capacity based taxation formula with vehicle engine power output based taxation (engine horse power) criterion, official sources revealed.
The revenue loss incurred under the present taxation formula has prompted the government to change the present system, a senior government official said.
The previous system of calculating the vehicle import duty on the cost, insurance, freight (CIF) value of the vehicle has brought sizable revenue despite minor leakages owing to under-invoicing by certain importers, he pointed out.
Under the previous system the price invoiced or quoted by a seller includes insurance and all other charges up to the named port of destination, he explained.
With a view to introducing a fair and justifiable system of duty calculations, the Finance Ministry is weighing the pros and cons of the new taxation system linked to the vehicle engine output (Brake Horse Power BHP).
The proposed taxation system will compel the higher end super luxury vehicle buyers to pay a higher duty closing a tax revenue leakage of the government as well as creating a level playing field and ensuring the survival of all players in the market, the official claimed.
Under the present taxation formula based on engine capacity, the same duty should be levied for different brands of vehicles with same engine capacity, he said adding that the value of those vehicles differ each other in quality standards.
It is unfair to charge the same duty for a 2,000cc Korean-made vehicle purchased for US$20,000 and a European manufactured one with same engine capacity purchased at $35,000, he said.
Citing an example, he noted that a European made model X with a CIF value of Rs. 5 million (taxed at 130 per cent under the previous system) will be charged with the same duty of a Japanese made model X with a CIF value of Rs. 2 million (taxed at 300 per cent) thus depriving the government of a duty income of around Rs.7-10 million per vehicle, he explained.
The Ministry has focused attention on the additional outflow of foreign exchange on an expensive vehicle which does not bring in sufficient proportion of inflows to state revenue, he said adding that basically, the current tax formula which is aimed at tackling revenue leakage by closing the front door had opened the rear door for foreign currency outflows.
However, he said that no final decision has been taken to introduce the engine horse power based taxation system and it is still under the process of evaluation and consultation.
Meanwhile, the depreciation of the rupee against the Japanese Yen and the US $ has pushed the prices of imported vehicles by around 5 per cent making it difficult for motor traders to sell their vehicles.
The prices of all vehicles will go up by 5-6 per cent due to the depreciation of the rupee pushing sales volume down, President of Vehicle Importers’ Association of Lanka (VIAL) Ranjan Peiris said adding that the price of fast selling Suzuki WagonR will go up to Rs.3.5 million from Rs.3.3 million.
Franchise motor traders complained that their business is on the verge of collapse and most of them have decided to retrench their staff as a cost cutting measure.
Around 1000 temporary and casual workers will lose their jobs under the present circumstances they claimed stressing the importance to maintain a constant policy on vehicle taxation in the country.