Budget further jolts automobile industry

The 2017 Budget proposals presented by Finance Minister Ravi Karunanayake on the automobile industry was nothing but a blatant breach of promises given by him and the industry has lost faith in him, Ceylon Motor Trader Association(CMTA) Chairman Reeza Rauf said.

Duties have been increased two fold despite the minister’s assurance to the industry that the tax structure will remain unchanged for at least two years, he said. For example the unit rate of a 1,000 cc car with an average value of US$ 5,000 CIF has been increased from Rs 1,500 to Rs 1,750 which will result in an average increase of Rs 250,000 which is a 34% increase in duty alone, he asserted. Meanwhile at a media get-together hosted by Minister Karunanayake recently he reiterated that the taxes of vehicles below 1,000cc will be further reduced. However contrary to these pledges to the industry and media the budget proposals advocate a 34% increase in taxes on vehicles below 1,000cc which is baffling.

Rauf said if one considers an average car with a 2,000 cc capacity the unit rate has been increased from Rs 4,500 to Rs 5,500 which will result in a duty increase of Rs 2 million.

Although the argument is that the duty has been increased to deter luxury vehicles from coming in, the repercussion of introducing the unit rate value system is that it will affect the entire market, the CMTA Chairman said.

A classic example is that an average Japanese or Korean car with an engine capacity of 2,000 cc having an average value of US$ 18,000, the customer will have to pay a duty of 420%, while for a similar 2000 cc Mercedes of BMW car with a value of US$ 30,000 the customer will have to pay a duty of only 250%. This will create a total imbalance in the market and this was a result of not accepting the manufactures invoice value and going by the unit rate tax on engine capacity, Rauf said.

Another example is if the government is very much concerned in bridging the gap of balance of payment and things like that, a level playing field must be created to control the industry. And the CMTA is ready to support if looked in an overall manner without favouring certain segments of the industry. “If you take a car over 3,000 cc like a Prado, Land Cruiser or Discovery they have brought down the unit rate from Rs 7,500 to Rs 6,000.If you take a vehicle of that calibre with an average engine capacity of 4,200 cc which will cost around US$ 50,000 earlier the customers had to pay a duty of 435% duty.

By bringing down the unit rate tax to 6,000 per unit, the duty rate has come down to almost 345% for over 3,000 cc vehicles. Here there is a drop of about 112% duty. Rauf questioned as to what was the rationale here in adjusting the duties like this? “It is very clear that it is favouring certain segments in the market,” he alleged.

Rauf said that it was very disappointing that the minister has gone back from his assurance that he would not change whatever the ad-hoc high duty imposed for at least two years.

Based on that assurance, vehicle importers had done their forecast and adjusted the models to market their vehicles. It is very unfortunate and frustrating to the industry the move taken by the minister to go back on his words, Rauf said.

Rauf questioned as to who will take the responsibility for the cars that had been ordered three or four months ago in which the prices will shoot up by six to seven million due to the proposed irrational duty hikes imposed on vehicles.

If this trend continues there will be job cuts, closure of showrooms with scores rendered jobless and many more dependents of the automobile industry losing livelihood, Rauf cautioned.

Also the Prime Minister’s aspiration of creating one million jobs may take a reverse and create more unemployment if this trend continues.

The the duty reduction on electric cars is questionable as from the industry point of view there is a question as to how manufactures can offer it.

Rauf said double cabs with minimum duty of Rs. 5 million will see an average increase of Rs. 1 million duty.