Vehicle importers anticipate tax hike on small cars from upcoming budget

From left: VIAL Executive Committee Member Thissa Ranasinghe, VIAL Executive Committee Member Kasun PAthiraja, VIAL Secretary Keerthi Gunawardena, VIAL President Sampath Merenchige, VIAL Treasurer Franklin Fernando and VIAL Co-Secretary Dushan Asanga
Pic by Nisal Baduge

By Chandeepa Wettasinghe
Prices of small cars below 1,000cc engine capacity may go up due to tariff increases in the upcoming budget, an official from the Vehicle Importers’ Association of Lanka (VIAL) said yesterday.
“My personal feeling is that the tariffs of small cars below 1,000cc may go up in the upcoming budget,” VIAL Secretary Keerthi Gunawardena said.

He said that Finance Minister Ravi Karunanayake had communicated with the industry that there are anomalies in the small car market.

“He didn’t directly say that he will increase tariffs but that there are some anomalies which he will correct. Most of the time, correcting anomalies does not mean a reduction in price but an increase,” Gunawardena said.

This is despite VIAL President Sampath Merenchige saying that Karunanayake had promised not to change vehicle import tariffs for the next two years to give both consumers and sellers some consistency.

Over the past eight months, the overall motor vehicle registration numbers have gone down by 27.15 percent year-on-year (YoY), according to JB Securities (Pvt.) Ltd, and motor car registrations have decreased by 52.31 percent YoY.

However, since the tariff increases were heavily inclined towards the cars above an engine capacity of 1,500cc, large volumes of small cars continued to be registered, albeit with stunted growth.
“The government should fulfil the needs of the people. Before the January 8 (2015) election, there were advertisements of a girl coming in a motorcycle and telling her mother that she might be able to afford a small car if the UNP comes to power. They are aware of what the people wanted,” Gunawardena said.

However, he noted the massive tariff increases for vehicle imports in the 2016 Budget, with the tariff rates changing thrice since the announcement of the budget till this May, and said that the main goal the government had set in increasing the tariffs has not been achieved.

“The Finance Ministry said that the Customs tariff collection targets are being achieved. But that is including the tariffs on all products. I can tell for certain that the tariff targets from vehicle imports have not been achieved because imports have gone down by 50 percent,” he said.

JB Securities too had projected tariff collections from vehicle imports going down by 21.40 percent due to the drops in volumes.

Gunawardena alleged that the secondary reason the government imposed higher tariffs—congestion—was also a sham.

“There are street merchants crowding pedestrians out from the pavements to the streets, one full lane is used for parking and there’s poor discipline on the road. If road usage is improved we can cut down congestion by 50 percent,” he said.

VIAL Treasurer Franklin Fernando noted that the real reason for the increase in tariffs was to control the rupee.

“The government increased tariffs because they don’t want increased imports weakening the rupee, because then the loan payment rates will also increase,” he said.

Meanwhile, Merenchige said that the vehicle prices will start to go up starting from another two months, due to the continuous gains of the yen and the VIAL members who had kept selling old stock since the tariff increases in May will not import new stocks under the current tariff regime.
“So this is the best time to buy a car for the next few years. It’s a buyer’s market,” he said.

According to the VIAL, under the current tariff rates, the popular Toyota Prius has a Rs.7 million tax, compared to Rs.2 million previously, pushing the price of the vehicle from Rs.5.5 million to nearly Rs.10 million, compared to Rs.3.5 million of costs in purchasing and transporting the vehicle to Sri Lanka.

Gunewardena meanwhile said that there could also be tariff corrections in European cars and Japanese vans.