A prudent move | Daily News

A prudent move

The Government has announced more drastic measures to contain the fall of the Rupee. This was inevitable given the rapid outflow of foreign exchange for certain big ticket items including vehicles. Statistics show that almost US$ 800 million has flowed out for vehicle purchases in a matter of months, while the fuel import bill has also shown a considerable increase. This is par for the course, since nearly 40,000 cars have been registered in the new CBA-led number series alone.

Among the measures announced are a mandatory 200 percent cash margin on Letters of Credit opened for importing vehicles (other than commercial vehicles) and a 100 percent margin on several other items including televisions, speakers, mobile phones, perfumes and footwear. There will be no immediate impact from these measures in the retail market as at least 20,000 vehicles are available at “car sales” around the country and ample stocks of the other items subject to restrictions are also available.

But the biggest measure is also the most important and perhaps the most overdue: the stoppage of duty/tax free vehicles permits for MPs (for one year) and public servants (six months). It is common knowledge that the vehicle permit system is widely and openly abused by both politicians and public servants – there are plenty of “Permits for Sale” and “Permits Wanted” advertisements in Sunday newspapers. Some of the high-value permits for vehicles having a CIF value of US$ 55,000 (Rs.9,350,000 Approx) change hands for twice that amount or more. The result is a huge loss to the economy as the tax net is cheated twice – once when the permit is sold and again when the vehicle is actually imported. Moreover, the clearance fee for these vehicles is a laughable Rs.1,750.

One cannot also fathom why our politicians need luxury vehicles ostensibly to serve the public. Do they really need a Toyota Land Cruiser Sahara V8 or a Mercedes Benz GLS to serve their constituents? Granted, there is some rough terrain to traverse for some MPs, but there is nothing that a double cab pickup truck cannot handle. And the price of even a fully duty paid (not duty free) double cab is around Rs.10 million versus a luxury vehicle that costs at least three times more. Sri Lanka is the only country where politicians travel in super luxury vehicles. Scrapping permits is not enough - laws should be brought in to ensure that politicians cannot purchase luxury vehicles at all, unless they do so with their own, verifiable sources of income after paying the duties and taxes in full.

The permits not only result in a huge loss of income to the Customs but also create an imbalance in the vehicle market. The time has indeed come to scrap the vehicle permits for all time – there is no reason why politicians and public servants deserve duty concessions over other sectors. Frankly, there are many people in the private sector and SME sector who make a similar, if not bigger, contribution to the economy, without getting any benefits in return. We should also mention our expatriates, who toil hard for years in foreign lands and get only a paltry US$ 1,750 duty free allowance for buying white goods. If there is any sector that deserves duty concessionary permits, it is the expat workers.

What we need is a rational duty structure that applies equally to everyone across the board for importing motor vehicles. There should be no duty free facilities for passenger vehicles for anyone, period. A viable duty structure should be in force at least for the next five years. What happens now is that once a particular category (say, 1,000 CC) gets a duty cut, there is a frenzy to import such vehicles. This is exactly why the vehicle import bill went up so drastically recently, as more than 90 percent of the vehicles imported were from the 1,000 CC category. On the other hand, if the duties are distributed more evenly and progressively throughout the different engine capacities, there will be no mad rush to import vehicles from one particular category.

But there is one area of concern – electric vehicles. The Government should revert to giving tax and duty breaks for all-electric vehicles, which are now going mainstream. All major manufacturers have already or will soon be introducing pure electric vehicles and some manufacturers will only have an electric line-up by 2025. This should tally with the Government’s plans to electrify the Government fleet by that year and ensure that no fossil fuel vehicles are registered after 2040. Restrictions on pure electric vehicles could slow down this momentum. While giving concessions for electrics, the Government must also ensure that the national grid is not used to charge electric vehicles. This can be done by encouraging the installation of solar-powered car chargers, which too can be given duty-free status.

The car is an aspiration and a democracy is all about choice. We hope that the Budget 2019 will contain a more viable vehicle duty structure that balances the public’s mobility aspirations and the Government’s revenue imperatives. 


 

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