Vehicle assembly with used spare parts under scrutiny
The Government is promoting vehicle assembly units using imported used spare parts amidst import restrictions but questions are being raised over this facility.
The Ministry of Industry in collaboration with Sri Lanka Automotive Component Manufacturers’ Association will be seeking a substantial level of investment in the domestically value-added automobile manufacturing/assembly industry.
This could create the demand for locally manufactured components increasing their quality and to achieve internationally renowned standards.
Under this initiative several international manufacturers as well as local players have expressed interest in the assembly of vehicles and automotive component manufacturing thus saving around Rs. 300 billion annually in future, a senior official of the ministry said.
The Ministry has already introduced the standard operating procedure (SOP) for local assembly of vehicles and automotive component manufacturing to encourage world renowned brands to locally assemble vehicles.
Under this set up the government is also focusing attention on allowing a private company to assemble 2250 vehicles locally by using used spare parts as remedy to the vehicle shortage in the country. The company in question has a dubious past and is alleged to have earlier violated Customs regulations, industry sources said.
A discussion was held at the Finance Ministry recently on the taxation issue of this particular project and the present status of this project, a senior official said, adding that the government coffers will be deprived of a sum of Rs. 6.65 billion in tax revenue by allowing this project to go through.
Sometime back, this company was given a duty concession to import used motor spare parts to assemble in Sri Lanka adding local parts and providing employment opportunities for youth.
Although the agreement was as such it has imported vehicle units in separate shipments under two names and got them assembled, a senior official of Sri Lanka Customs said. The previous track record of this company should be investigated before giving permission to resume its business, he added.
The viability of the project backed by a top state official is still to be ascertained as the SOP introduced by Minister Wimal Weerawansa has clearly indicated that vehicle assembly has to follow stipulated guidelines.
The SOP clearly states that it is vital that the sector should be provided with the opportunity to expand itself in the domestic market at the first stage.
In order to achieve this objective, there should be a substantial level of investment in the domestically value-added automobile manufacturing/assembly industry, which could create the demand for locally manufactured components increasing their quality and to achieve internationally renowned standards.
Motor traders noted that such vehicle assembly projects will jeopardise the safety of motorists, the general public and also contravenes an existing customs regulation, which only permits the importation of vehicles that has been used up to a maximum of three years from the date of first registration.
The danger of allowing this to go ahead is that the unsuspecting motor vehicle buyer would not know the year of manufacture of these so-called assembled vehicles and a car manufactured 10 years ago can be issued with the latest registration number plates from the Motor Traffic Department, they said.
The Government had spent $ 5 billion on vehicle imports over the last five years and a reduction of import duty of motor spare parts was announced to promote local assembly of vehicles and reconditioning and export of motor vehicles.
In 2019, approximately $100 million worth of spare parts were imported. The imported parts weighed 35 million kg.
The actual duty collected on motor spares can be estimated to be 35 per cent of CIF, which is $ 35 million. This works out to be a mere $3 per kg in terms of import CIF and $1 per kg in duty, motor traders said.