When the duty structure on all vehicles except commercial vehicles was revised under the last Budget, taxes on small cars below 1,000 CC (1.0 litre) fell by around Rs. 300,000-400,000, which naturally made them more affordable. Imports of so-called “Kei” cars from Japan, with an engine capacity of 660 CC and other small cars increased uncontrollably as a result. There was a sudden influx of 660 CC models such as Suzuki Wagon R, Nissan Dayz, Honda N Box and Mitsubishi EK to the country. A combination of lower prices and easier leasing (with a down payment of only 30 percent) led to a massive surge in registrations of small cars including 1,000 CC cars such Toyota Vitz and Suzuki Swift. The statistics are indeed alarming – more than 5,500 cars and vans of 1,000 CC or less capacity have been imported each month from January to May 2018. Actual registrations were not far behind, with the Department of Motor Traffic (DMT) running through the new CBA and CBB series in record time.
However, it was clear from the beginning that this could not go on indefinitely. Only US$ 316 million was spent on vehicle imports for the first five months of 2017, but this had doubled to US$ 666 million in the first five months of this year. This is clearly untenable in the long term for a developing country which has many other priorities. Plus, this puts the Rupee and other sectors of the economy under further pressure, not to mention the extra fuel shipments needed to “feed” the additional vehicles. Needles to say, the effect on traffic and pollution also has to be considered.
Therefore, one cannot fault the Government for taking corrective steps, even if it means that at least some people who wanted to buy a car may not be able to do so or may have to opt for a lower priced model. Finance and Media Minister Mangala Samaraweera has said the tax imposed on vehicles less than 1000cc was a move by the Treasury to cushion off the effect on the rupee and curb small vehicles imports. He said the roads were fast becoming congested and that imports were spiralling out of control. Describing it as a ‘tsunami’ of small vehicles, the Minister added that it was high time imports were regulated.
The Minister signed a gazette notification to amend the excise duty of vehicles below 1000cc including hybrid vehicles effect from August. A unit tax of Rs 1.5 million will be applicable for a motor car below 1000cc while a unit tax of Rs 1.25 million will be levied for a hybrid electric car below 1000cc. Accordingly, prices will go up by Rs.300,000-425,000 on average. To be fair by the Finance Ministry, it has given a grace period for buyers and importers as these new taxes will not be applied to vehicles for which Letters of Credit have been opened before August 1, 2018 and cleared before January 31, 2019. Chances are that at least 10,000 vehicles will escape the new taxes due to this measure.
Given that at least 10,000 sub-1,000 cc vehicles are already available at hundreds of “car sales” centres islandwide, there should be no discernible effect on prices of small cars, which now range from around Rs.2.3 million-Rs.4.4 million, at least until end September. The authorities must ensure that car dealers do not jack up the prices of existing stocks unfairly, since the Government has given them a generous window to clear incoming stocks ordered before August 1.
In any case, the time has come to regulate the car imports undertaken especially by non-franchise dealers. Franchise dealers or sole agents representing various car makers keep only a small stock in hand and import stocks depending on customer orders. However, the non-franchise dealers or parallel importers import cars en masse and keep hundreds of them in their yards until customers turn up. There are even advertisements to effect that “car sale” X has 150 units of Brand Y Model Z for sale. Still, one often sees the same establishment importing 50 more units of the same brand and model without even finishing the existing stock. The authorities must devise a methodology where importers are not permitted to import more cars of the same brand and model until they entirely dispose of the existing stocks. This will prevent the unnecessary outflow of precious foreign exchange.
The DMT must be given a bigger say in the process of vehicle imports. It is time for Sri Lanka to have a more strict policy of Homologation, the process of certifying or approving vehicles to indicate that they meet regulatory standards and specifications, such as safety and technical requirements. Already, cars without Airbags and ABS brakes are not allowed into the country, as are cars that do not conform to the Euro IV emissions standards. In line with this decision, fuel standards were also raised recently to Euro IV. We need to be in tune with the latest trends in vehicle regulations to balance public aspirations and fiscal imperatives.
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