Luxury tax deprives Lankans of vehicles with new security, safety features | Daily News


Reality behind Sri Lanka’s auto industry

Luxury tax deprives Lankans of vehicles with new security, safety features

Niranga Peiris
Niranga Peiris

Sri Lanka’s tax structure for luxury vehicles is very high, while it has halted the import of vehicles with new security and safety features, said Director Sales and Marketing of Prestige Automobile (Pvt.) Ltd., Niranga Peiris.

“A BMW or other luxury vehicle purchaser in Sri Lanka, would pay as much as three times or even more, compared to a buyer in the UK or Germany, due to high taxation of duty, luxury tax and other factors. These alarmingly increasing taxes without proper infrastructure management growth of the motor industry, have hampered local sales substantially for every importer.”

“ Today, there are innovative and very useful accident prevention features such as active protection, 360 degree camera, auto braking, additional air bags for all passengers, DSC – Dynamic stability control, DTC – Dynamic traction control, park distance control, semi-autonomous driving, parking assistant, where your BMW will identify the vacant slots and park itself and many more from a safety aspect. Obviously, with the current Luxury Tax (LT) thresholds, all these options would be taxed heavily, making them very expensive to add.”

“Therefore, one could say we compromise on additional safety related options and tech options due to luxury tax implementation. This really puts additional pressure to keep cars with a basic level of options, to avoid high luxury tax. It’s a shame as a brand such as the BMW, has so much to offer in terms of safety and tech related value additions and options to improve safety and driving pleasure.”

Referring to luxury tax and most modern safety features of automobiles, Niranga said that they have mandatory requirements for emissions standards, air bags, seat belts and ABS. “So most automobile manufacturers comply by these, as they have to meet these minimum standards stipulated by the authorities. If not, vehicles without the above, would not be permitted for import. However, technology has improved far beyond and above very basic safety requirements, especially with Premium Automobile Manufacturers such as BMW.”

We were the trend setters

“Sri Lanka certainly has growth potential in top luxury segment. As a country, we have proven that we could attract world’s top motor vehicle brands through franchises for the past few decades. Especially, we have increased the high end segments with such a Premium brands such as the BMW.”

“We were the trend setters in the 2010 – 2015 eras, introducing the BMW 5 Series, 3 Series, X3 & X1 to the local market in numbers. This trend helped some other Premium brands and continental vehicles to establish in SL markets as well.”

“The most important aspect was that through the model range we introduced, we shifted customer brand experience and driving experience significantly. We were the ones to benchmark such cars, boasting with sheer driving pleasure, safety features, highly customer oriented option levels backed by state of the art After Sales facilities.”

“Unfortunately, due to our inconsistent tax/duty structure and lack of long term vision in policy making, the motor industry has suffered eternally,” he stressed.

Asked if they were happy with vehicle sales results, Niranga answered in the negative. Having said that, we could be quite proud of what Prestige Automobile has achieved, bringing “Luxury” with a justifiable price tag to our well deserving clientele, despite the high taxes.”

“These taxes which do not create a level playing field, also have a negative impact on bottom lines. Moreover, this current system deviates the government from collecting the rightful and correct taxes from vehicle imports.”

“As a result, certain non-franchise importers could import vehicles manipulating the values to avoid taxes in order to make more profits. We as franchise holders, have strict compliance standards, infrastructure and staff to maintain.”

“This increases our overheads even though this is a must to deliver the highest standards to our customers with a brand promise. This dilutes the industry and presents us numerous threats environmentally and financially, as a nation. It is high time regulations are put in place for vehicle importers from respective authorities.”

“Prestige Automobile has not gained from recent tax cuts, since VAT is not applicable on motor vehicles and there’s no direct impact at the moment. “However, when the money circulation and spending power increased with the general public, due to tax cuts, this could act as a positive stimulator for the motor industry, but likely in the long term.”

“Globally, electrification is taking place for a better world, environment and less pollution, yet we take the opposite and pollute our nation by allowing individuals to bring used, unsuitable, out of date technology vehicles, which have been discontinued in certain countries. “We have become a dump yard simply, due to lack of administration and rightful policies.”

EV vehicles don’t have spares

Asked about what’s their current position is against direct importers, he said they as franchise holders, pay applicable duties on manufacturer’s invoice wherein other direct importers have the freedom to declare their own values in order obtain an undue advantage, he said, “steps should also be taken to avoid importing unsuitable vehicles as today there are no restrictions on bringing Electric Vehicles (EV) by any importer. “This has caused major havoc since some imported EV vehicles don’t have spares and even batteries. Today, there is around 4,500 EV cars with battery issues.”

“We suggest that in future all vehicle importers must be registered, monitored for their due corporate taxes, employees EPF, ETF and other environmental obligations, their service facilities should have etc.”

“We could benchmark Singapore, Indonesia and many other countries in their practices to have a healthy motor population and to streamline government revenue through all imports.”

Commenting on their subsidiary Hyundai Lanka, he said that they were appointed as the distributor for Hyundai in 1999 and began commercial operations in 2000. “When we took over from the previous distributor, the brand Hyundai basically was nonexistent, although the brand Hyundai was present since 1996. From the years 2000-2017, we always achieved their business plan and sales targets and we were awarded the excellent sales for Asia Pacific Region in 2015, as well.”

“The November 2017 Budget, changed vehicle import duty from CIF to an Engine Capacity based system, thus 1000cc and below vehicles paid considerably less duty than any vehicle above 1000cc. This led the entire automotive market to shift to roughly 90% being 1000cc vehicles registered. Hyundai did not offer models with low engine capacities and therefore, were not able to compete effectively post-budget. This led to Hyundai Lanka having no competitive models”.

“Targets set by Hyundai Regional office during 2018/19 period, were also very much unrealistic, especially not having a model to drive volumes and to compete in the market. Things could have been very different if the current Hyundai Venue which came with a 1000 CC engine, was available. Hyundai Lanka would have surpassed targets with this mid-size competitive SUV.”

“Unfortunately, this and few other models were only offered at the end of the 2019 only when we insisted on these models. So basically, if this had been offered before, we would have surpassed the targets”.

“It is only during the last two years that we were unable to achieve the targets, but the reasons are far beyond our control and self-explanatory in relation to the change of the duty structures by the government.”

“Vehicle taxes have been amended and enhanced over 50 times through gazette notifications. It’s not only causing huge duty/ tax loss to the government its creating an uneven playing field among authorized agents. The recent introduction of Luxury taxes based on CIF values has brought the same issue back up again leaving individual importers to adjust the CIF to pay less LT (luxury tax)”.

“We sincerely hope with the appointment of our new President Gotabaya Rajapakse these anomalies will be looked at and corrective measures will be taken for the betterment of the entire motor industry and the country. Looking at recent reformations and the President’s process-driven approach towards the government sector, we have confidence that things will change for the better in the near future.”

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