Auto assembly industry likely to collapse amid new taxes
Sri Lanka’s automobile assembling sector which has been expanding with high growth, is now under threat with the recent decision to slap new taxes and lift the ban on the import of cars without introducing protection for local assemblers.
Industry stakeholders such as Nalin Welgama, Founder of Ideal Motors, warn the current measures can severely damage the progress achieved.
It was under Mr. Welgama’s initiative that Ideal Motors joined hands with India’s Mahindra and Mahindra to assemble vehicles locally, adding to the success of the domestic industry.
Sri Lanka has 17 vehicle assembly plants that manufacture various vehicles, such as motorcars, SUVs, and electric three-wheelers.
A further 17 investors are lining up to get into the market, pointing towards sustained growth. The industry sustains more than 15,000 direct and indirect employees, indicating its economic significance.
Though the government’s move to remove the ban on vehicle imports is intended to raise revenue from taxes, it could undermine the growth of local assemblers. Mr. Welgama believes a tax regime that incentivises locally assembled vehicles is necessary to keep the industry competitive, draw investment, and prosper in the long run.
Hydrogen fuel cell vehicles (FCVs) are emerging as an attractive option over longer-range and faster-refueling electric vehicles. However, global infrastructure development in hydrogen is in the very early phase, and the production cost is high.
Sri Lanka would require huge infrastructure and policy backing to invest in hydrogen technology, Mr. Welgama told The Sunday Times Business.
Imported vehicles are cheaper than domestically assembled cars owing to its low production cost, economies of scale, and global supply chains.
The country’s auto component manufacturing sector is gaining a reputation at present for producing high-quality components, positioning Sri Lanka as a critical link in the regional supply chain.
It is working towards growing component export revenues from US$800 million to $2 billion within five years, while generating an additional 45,000 jobs.
The government’s Standard Operating Procedure (SOP) for the industry has assisted in providing a definite regulatory environment that has incentivised domestic and foreign investment.
Sri Lanka has a possible option of exploring joint ventures with the established automobile sector in Tamil Nadu to showcase its presence in the region.
Electric vehicles (EVs) are not a favourable option due to its a high upfront price and a scarcity of public charging stations could discourage its sales in Sri Lanka. EVs’ higher electricity demand will also exert pressure on the country’s grid.
While the Sri Lankan motor vehicle industry is growing, there should be immediate action to protect domestic manufacturers and support long-term wealth in a tough and emerging world market.
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