Immediate excise tax hike shocks motor franchisees

By Azhar Razak

Sri Lanka’s brand new motor vehicle franchise holders have expressed shock and anger over the government’s decision made in the Budget 2011 to drastically increase excise taxes with immediate effect, which they say should have only been made effective from January 1, 2011 similar to and in conjunction with other duty revisions.

According to the newly appointed Colombo Motor Traders Association (CMTA) President Thilak Gunasekera, this new regulation would make brand new vehicle franchisee holders incurring additional costs (given the substantial excise tariff hike proposed) for an interim period of a month, until new tax revisions which has reductions and removals of some levies (as announced in the Budget 2011) takes effect from January 1, 2011 easing the cost disparity. 

“I have been informed by the Customs authorities that the excise tariff hike will come into effect immediately while other tax reductions would only be made effective from January 1 next year. This is very unfair and this would make brand new vehicle dealers to absorb the additional costs incurred in the interim period,” Gunasekera told the Bottom Line in an interview last week.

He said that most brand new car dealers are disgruntled over this decision and have therefore requested the association to take up the issue with senior authorities as soon as possible. 

“We will be seeking an appointment with the Secretary to the Treasury as soon as next week and take up this issue,” Gunasekera said.
 

According to the new budget proposals, excise duty for imported vehicles with less than 1,000 cylinder capacity (cc) engine is to be increased by 16 percent, from 7 percent to 23 percent while for vehicles with an engine capacity between 1,000cc and 1,600 cc, excise duty has been increased by 20 percent, from 17 percent to 37 percent.
 

However, other taxes such as Regional Infrastructure Development Levy (RIDL) and Social Responsibility Levy (SRL) have been removed while Nation Building Tax (NBT) has been reduced from 4.0 percent to 3.0 percent, and value added tax reduced from 20 percent to 12 percent.
 

RIDL is charged on imported vehicles under specified HS Codes at three rates (i.e. 5 per cent, 7.5 per centand 10 per cent) and is dependent upon the cylinder capacity, seating capacity and specified weight of a particular vehicle while SRL is charged at 1.5 per cent.
 

The government had last announced a tariff revision in June this year. Prior to that, excise duty applicable to vehicles with an engine capacity below 1,000cc had been 34 per cent while vehicles with the capacity between 1,000cc to 1,600cc had been 44 per cent.
 

Asked as to what impact the new tariff structure would have on the prices of brand new vehicles after January 2011, Gunasekera said that it was too early to comment since they were still studying the new tax revisions.
 

Meanwhile, other industry sources said that prices of used vehicles are likely to drop next year with the new tax changes and more specifically because the rates of depreciation allowed on them have been increased which should pull vehicle values down.
 

“Three year old cars will be depreciated to 60 percent of their values compared to about 80 percent earlier. Cars three and half years old will be depreciated to 55 percent,” an industry official said.
 

Until June this year, Sri Lanka had a nine band import tax structure on automobiles which included a surcharge on customs duty, CESS, excise duty, port and airport development levy (5 per cent), NBT, RIDL, SRL and value added tax.
However, a tax revision that was made effective from June 1, 2010 removed the 15 percent surcharge on custom duty and the 10 percent CESS on motor vehicle imports narrowing the range of taxes from 90 to 280 per cent of the cost, insurance and freight (CIF value).
 

The Budget 2011 has also proposed to exempt the importation of electric and highbred vehicles from Excise Tax and VAT in order to promote environmental friendly tourism. 

http://www.thebottomline.lk/2010/11/28/page4.html

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