Many vehicle franchise holders facing major drawbacks due to new policy
View(s):Sri Lanka’s well-established corporates have been the main contributors to the economy throughout history. Over the years they have kept the country on the path of growth and have been a major part in how Sri Lanka is seen internationally.
The automobile segment in the country has been one such developed sector with many established franchises of world renowned brands and many of these franchise holders had proven to be in the forefront of the business world in the last three to four decades.
However, it is a pity that inconsistent government policies are hurting this industry despite the contribution they make.
The latest hit to these corporates is due to two specific policies adopted by the present government. These are specifically, the removal of the ad-valorem duty calculation for vehicles and the sudden introduction of the Euro IV emission requirements.
This had resulted in some companies facing major challenges in managing their businesses and some struggling to keep pace with modern trends and managing affairs to survive while other irregular importers who employ a handful of staff and manage affairs with no proper after care services, offer no warranty, etc are thriving and make billions at the cost of the established business houses.
Current system of valuation
It is a worldwide accepted norm that the valuation of any article imported to a country is based on the actual value paid for that item.
In 2016 the government brought in a system of basing value on two platforms namely the actual CIF paid for or a calculation based on the cubic capacity of the engines or a flat duty for some vehicles irrespective of the value or cubic capacity of a vehicle.
When questioned, to our surprise we were informed that the main objective of the new system was to prevent malpractices by persons, who were manipulating the values of vehicles in return for other benefits.
The professional trade was always of the opinion that this was not the way to manage corruption. We believe that these persons who manipulate the system should be taken to task under the law of the country rather than creating a system for them to thrive.
In 2017, the new Finance Minister proposed a system removing the ad-valorem calculation. We are baffled by the reasons behind this decision that creates a huge disadvantage for the franchise holders.
By this removal there is no advantage for the country as a whole, other than the Sri Lankan government subsidising some selected products from selected suppliers. The new system created a scenario where products from countries such as India, Japan and Korea became more expensive for no specific reason, whilst some makes drastically reduced in price. As per the new system a similar engine car that is purchased at US$50,000 will pay the same duty of a car purchased at $8,000.
Euro IV standards
It was at the last budget that the government introduced the requirement for all vehicles to comply with Euro IV emission standards.
This was further re-validated through another circular specifying the type of vehicles that have to comply with this requirement.
According to the new requirement all vehicles imported to the country after July 1, 2018 have to comply with the new regulations with a few exceptions mainly for special applications and off the road vehicles.
We see the new move as a positive one towards reducing emissions and a wise move towards preserving the environment. However, the short span of time given for shifting to the new standards will surely pose further challenges to the already ailing auto industry specially the more established corporates.
It is also worthwhile to note that the policy-makers have ignored requests by the trade to consider the path taken by other countries in shifting to higher standards.
Ideally this transition should have been carried out according to a proper laid down roadmap, with all stakeholder requirements taken into consideration.
In other countries, this kind of change would have come with a grace period of at least two years, as mainstream vehicle agents need time to obtain approval from manufacturers and plan production.
It is also not clear at this moment, how long brand new manufacturers will take to approve vehicles with Euro IV standards through the local distributors.
It is also not clear how the cost structure will get affected. While the government has still not given an official assurance of non-contaminated Euro IV fuel supply island-wide, it is unfair to expect world renowned car manufacturers to export Euro IV standard vehicles as any failure of the vehicle due to poor fuel quality would reflect badly on their brands and reputation leave aside the ultimate user having to face issues.
However, the un-authorized importers will source any vehicle with any type of engine, as their commitment towards the customer and the country ends at the point of sale.
(The writer is a veteran in the motor trade)