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Tue, 02 September 2014 13:16:45
Sri Lanka car tax cut sends market into a spin
22 Jun, 2010 08:15:18
By Namal Suvendra
June 22, 2010 (LBO) - A steep tax cut on vehicle imports in Sri Lanka has injected life into the almost comatose car trade, but some dealers are stubbornly holding onto high prices hoping that the lower tax regime will not last too long.
They are appealing to the fear and greed of buyers. While some may not trust the government to maintain a pragmatic tax structure, others want to have the satisfaction of beating the system before taxes are put up again.

But with an International Monetary Fund deal keeping dollar shortage phobias at bay, and the government's comfortable foreign reserve stock, the tax cut may be expected to last at least as long as the IMF calls the shots.

Despite the heavy advertising of vehicles at "new duty rates", "prices slashed," "lowest price in town," many appear to be reluctant to part with fleets imported at higher rates.

A dealer at Bambalapitiya offers a 2006 Toyota Belta (1000cc) at 3.6 million, when his list price for a newer 2007 Toyota Belta (1300cc) car is 3.2 million rupees. Hard to imagine the nutter who will pay 400,000 rupees more for an older and less powerful car.

At Kohuwela, a dealer offers a 2-wheel drive Navara smart cab at 4.2 million rupees. Drive a little further away to Mount Lavinia and the identical Nissan is offered at 4.9 million rupees and the person who buys it must have a place reserved at Angoda.

An ambitious young man advertised his registered 121 Toyota Corolla (2006) at 4.5 million rupees when the better and newer unregistered Toyota Corolla 141 (2007 manufacture) could be had for 3.5 million rupees.

The man's explanation for holding out: "The 121 is a better car than the 141." By his logic, the 1984 Toyota DX 72 wagon or the 1972 Corolla KE20 must be worth a fortune.

Then there is the owner of a 2006 Maruti Alto who advertised in a Sinhala language paper asking for 1.35 million for his well maintained car when the same model brand-new car can now be had for 50,000 rupees less.

When the new price was pointed out, the man broke down and said he would never sell his car.

Many rushed to buy the so called "smart cab" because it was imported as a "lorry" and attracted a modest 10 percent duty rate. But with the new duty structure the smart cab is no longer a smart option.

Toyota has slashed the price of 4-wheel drive double cab by more than four million rupees. The 10.5 million rupee 4WD Hiluxe Toyota is now a more attractive six million. Only just over a million more than a smart cab.

The previous duty structure did not encourage the import of diesel-powered dual purpose vehicles.

That is why we have an ageing fleet of vans and double cabs as well as a large number of illegally assembled (erroneously called body-permitted) jeeps.

The new duty will encourage the import of second-hand diesel cabs and vans from Japan as well as South East Asia which should further depress prices. How smart would it be to drive a smart cab then?

With fleets of cars being unloaded at the Colombo port and labourers working overtime to clear space at the harbour to accommodate the flood of vehicles, the market can only slip further with competition getting stiffer.

If you are selling, do it fast. If you want to buy, don't rush.

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READER COMMENT(S)
8. M P SILWA Jul 02
Thank you very much for your valuable views on this . I also Tried very much to get a correct information about new car prices.I could not find any good information. Thanks
7. niluk Jun 29
Thanks for the article, was looking around for market information on the possible reduction of prices on vehicles.I would like to read about it.
6. privateer Jun 23
I agree with the speculation that this sudden duty cut is some temporary 'fix' meant to facilitate some specific interest group. Once their 'interest' is satisfied, it is likely that the so-called 'authorities' raise duty again. Still, there is no harm in car traders exploiting this temporary window. Congratulations, LBO, for very well written articles that handle their subjects with considerable depth of information and knowledge.
5. Sanjeewa De Silva Jun 23
Great Article - finally some good interesting artiles to read which is also intellectually stimulating.. Well done
4. doch1500 Jun 22
Very well put Sir, cannot have put it any better. I was told by a friend who went to buy a car that there was a flock of people waiting at the car sale to buy the car which were supposed to be on it’s way from the port to the sale, some were so upbeat that they reserved the cars just as soon as they saw it coming on the road.
3. Dayan Ranasinghe Jun 22
Thanks for the article, was looking around for market information on the possible reduction of prices on vehicles and this fit the bill.
2. sunil Jun 22
The duty rates are set to come down further when the government presents its full 2010 budget in November. This is in line with IMF guidelines to reduce tariffs and increase the volume of tax revenue. If you want to buy a car, wait till after the budget!

Sunil Mendis

1. EconoCautious Jun 22
The reduction in duties defied all the logic in economics as pointed out by the Economist at the Sunday Times: widening trade deficit, possibility of oil bill rising again, poor road network that cannot accommodate a bigger fleet on roads and stubbornly kept overvalued exchange rate which makes the matters more complicated.

This policy would not have been possible unless the authorities would have come under severe pressure from some interested parties.

Hence it is perfectly rational for dealers to wait for a change, since the policy does not seem to be sustainable.