Sri Lanka Vehicle Tax Slash Lauded by Motor Industry. SUVs to Come Down by Rs4mn. Car Prices too Come Down

02nd June 2010, www.thebottomline.lk, By Santhush Fernando

The local automobile industry, badly hit hitherto by the global financial crisis and exorbitantly high domestic tax regime, is expected to see a drastic drop in vehicle prices after Treasury slashed excise duty on vehicles yesterday.

Almost all vehicle importers whom The Bottom Line spoke to were very positive over the tariff revision, but majority opined that they were in the dark regarding the exact net duty levels applicable. (Pl see below JKSB Comment with item-wise chart of new duty/tax).

“It’s very difficult to tell precisely. However, this will give a badly needed boost to the automobile industry. At a glance, the price drop of cars may range from Rs.300,000 to Rs.1 million. Sports Utility Vehicles (SUVs) could anticipate a drastic decline up to Rs.4 million, while double cabs could come down by Rs.1.5 to 2 million, roughly,” President of Ceylon Motor Traders’ Association (CMTA), Zeeniya Rasheed said.

Unconfirmed sources say that the excise duty applicable to vehicles with an engine capacity below 1,000cc has come down to 7 from 34%. Vehicles with the capacity between 1,000 to 1,600cc would see excise duty drop from 44 to 17% while luxury vehicle categories would be subject to 64%, instead of the current 27%.

Fifteen percent surcharge, which is also applicable on electrical appliances imports, has also been scrapped.

“It’s really difficult to ascertain the exact formula as there’s cascading structure with one tax touching another tax. Nobody knows until we get confirmed through a ‘Cusdec’ (Customs declaration). It’s very complicated,” an automobile industry source said.

At present vehicle imports are subject to six ‘fixed’ taxes – Ports Authority Levy (PAL) of 5%, surcharge of 15%, Nation Building Tax (NBT) of 3%, Social Responsibility Levy (SRL) of 1.5%, Road and Infrastructure Development Levy (RIDL) of 2.5%, Value Added Tax (VAT) of 20% and three ‘varying’ taxes – Customs Import Duty (CID), Cess, and Excise Duty.

Speaking to The Bottom Line, Chairman United Motors PLC, Ranjith Fernando, said that the tariff revision would be a relief to both importers and buyers, alike.

“It’s certainly a welcoming move. The prices of cars will come down drastically. As many importers refrained from bringing large stocks and kept minimum stocks,” he said.

According Fernando, currently a Pajero was subject to between 300 to 400% total compound tax, depending on engine capacity and type of fuel.

The new tariff is likely to have an impact on locally-assembled vehicles.

“As it is there’s a huge price differential between imported and locally-assembled vehicles. However, with this tariff cut prices of the latter will also have to come down,” he added.

General Manager – Sales and Marketing, Associated Motorways (Pvt) Ltd., Shivantha de Zoysa said that they were yet to ascertain the full impact of the tariff revision.

“There are nine different types of sub-duties, while the government had introduced the tariff cut on excise duty. Currently, petrol vehicles with an engine capacity below 1,000cc are subject to a total net duty of 187%, on its CIF (Cost Insurance & Freight),” he pointed out.

According to de Zoysa, prior to the duty revision, a total net tariff of 217% was applicable for petrol vehicles with an engine capacity between 1,000 to 1,600cc, while vehicle categories from 1,600 to 2,000cc and above 2,000cc were subject to total net duty of 290 and 299%, respectively.

The number of brand new vehicles registered in 2009 was a mere 7,437 when compared with 25,325 registered in 2008, which was a massive drop of 70.63%. Government tax revenue, in contrast to Rs.17.4 billion earned in 2007, dropped to Rs.11.06 billion in 2008 and to Rs.3.25 billion in 2009.

Vehicles registrations expected to increase
In an Equity Research Report, releases by Bartleet Mallory Stockbrokers (Pvt) Ltd, says it expects vehicle registrations in 2010E and 2011E to increase.

“New vehicle registrations over the first four months of 2010 amounted 95,929, indicating an upward movement. Vehicle registrations could see an immediate improvement in 2010 with the economy gaining traction coupled with low interest rate,” it stated.

“In addition, tax reforms could further benefit vehicle imports, in our view,” the report noted.

Related Information:
A Comment by JKSB with Item-wise Chart of New Duty/Tax - Details of key tariff revisions pertaining to motor vehicles and consumer electronics

Download : Sri Lanka_Customs_Tariff_Calculator.xls

Sri Lanka Customs Tariff Calculator by HS Code