The introduction of a unit rate excise duty system and taxing cars on the higher of their import value or engine capacity has caused the tax component of passenger vehicles to increase by as much as 133%, thus shattering dreams of prospective car buyers,’ claims Ceylon Motor Traders Association (CMTA).
 Gihan Pilapitiya, Chairman CMTA |
The CMTA further alleges that one of the great dreams of any aspiring citizen is the ownership of a personal vehicle. Today, the Government has shattered the hopes of these hard working individuals by again arbitrarily and substantially hiking taxes on motor vehicles of all kinds.
The association states at a time when prospective car buyers were already reeling from the effects of the depreciating rupee, this latest change of the introduction of a unit rate excise duty system and taxing cars on the higher of their import value or engine capacity, has caused the tax component of passenger vehicles to increase by as much as 133%, with even an average 1.6L small family car showing a doubling of taxes.
What this means for consumers in simple terms is that the price of an average 1.6L Japanese family sedan such as a Toyota Corolla or Mazda 3 would skyrocket to Rs. 9 to 10 million, whereas a 3.2L Mitsubishi Montero would approach an astronomical Rs. 30 million.
 Mahinda
Sarathchandra
|
 Indika Sampath
Merenchige
|
Despite meetings between the Finance Ministry, Customs, the Ceylon Motor Traders Association (CMTA), representing brand new franchise holders, and grey market importer associations, where feedback was called from all sides, the final decision was made by the Government behind closed doors and with neither the input nor the consent of importers, the association alleges.
The reasons given for the necessity to increase Excise Duty unit rates was that some used car importers were suspected of price manipulation on imports, and that Customs officers were also complicit in manipulating values for personal gain. However, the CMTA strongly asserts that all vehicles, whether brand new or grey market, should be taxed at a fair rate based on their transacted (actual) value, and the most transparent and accurate way of obtaining these values is from the respective manufacturers. The government accepted to go with transacted value at discussions but had increased the slab rates on engine capacity to ensure that the majority of the vehicles fall in to this formula.
This new tax scheme, whilst taking into account the value of the vehicle, finally takes the higher of the percentage tax on said value, or the unit rate tax (fixed rupee amount per cubic centimeter of engine capacity). The exorbitant new unit rates cause all but the most high-end of vehicles to be taxed arbitrarily according to their engine size, in doing so also creating an uneven playing field in the market. For instance, a low end Chinese car a 1.6L engine would be subject to the same amount of tax as a luxury Mercedes C-class or BMW 3-series with the same engine size.
This unsubstantiated and excessive increase to vehicle taxation can only be detrimental to all parties concerned. Consumers will be unable to afford new or used vehicles, the automobile industry will face another severe decline, after weathering a massive 80% market drop just last January, and the Government will commensurately lose revenue, leading to perhaps further tax increases going by the logic so far applied, the CMTA added.
Meanwhile Vehicle Importers Association of Lanka (VIAL) President Indika Sampath Merenchige said based on the unit rate excise duty system gazetted by the government the prices of vehicles will increase in a unprecedented manner. For example a Toyota Prius will increase from Rs.3.3 million to Rs.7.2 million and would likely discourage people from importing Japanese vehicles in the future. “This is the highest tax increase on vehicles in recent history,” he claimed.
Furthermore, Chairman Vehicle Importers’ Association of Sri Lanka Mahinda Sarathchandra said prices of vehicles will increase substantially because of the newly introduced unit rate tax according to the Extraordinary Gazette Notification issued by the government. He said the tax on a Nissan X-trail for example which is currently at Rs.4 million will increase to Rs. 8 million, almost doubling the price.
Sources however said that taxes on electric vehicles with battery capacity of 100KW will come down from about Rs 1 million.
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