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Sri Lanka vehicle taxes 'prohibitive': Treasury
08 Mar, 2010 07:14:35
Mar 08, 2010 (LBO) - Sri Lanka's taxes on motor vehicles are 'prohibitive' and are discouraging imports and government revenues, the finance ministry has said in a report, echoing the view of the motor vehicle trade.
The finance ministry in a report issued under country's fiscal responsibility law in February said excise taxes on motor vehicles alone which had been 18 percent of the total in 2007 had fallen to 3 percent by 2009.

In 2007, the government had raised 17.4 billion rupees in motor vehicle excise duties. In 2008 car excise had fallen to 11.06 billion rupees and in 2009 to 3.25 billion rupees.

Sri Lanka's ordinary citizens pay high rates of taxes on imported motors cars amounting to over 200 percent in some cases, in the form of excise, import duty, value added and an assortment of other charges.

In November 2007 Sri Lanka had registered 26,100 new vehicles including 2,300 motor cars. In November 2008 only 20,500 vehicles were registered and car registrations had fallen to 965.

In November 2009 vehicle registrations had stabilized at 19,300 but cars had plummeted further to 329.

In 2008, state workers were given tax slashed cars, relegating ordinary people outside the state to second class citizens in a bizarre apartheid style move for a modern democracy. Lawmakers are routinely given tax-free cars.

Discriminatory taxation against the common people has become a feature of independent Sri Lanka with state workers and politicians also exempted from income tax.

The finance ministry said in late 2008 imports were further discouraged when the Central Bank imposed high deposit margins on letter of credits used for car imports in the middle of a balance of payments crisis.

Though the margins were later dropped imports did not pick up due to a slowdown in economic activities and "still high taxation", the finance ministry report said.

At the moment tax arbitrage is also taking place through local assemblers causing further revenue losses to the state.

The motor trade had been calling for reduction in import duties to make cars more affordable.

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10. Man May 07
Most ppl here fails to elaborate on the elasticity of demand for currency. Foreign exchange markets form natural equilibriums , artificially trying to alter this is not sustainable and only results in deteriorating reserves. for example if the rupee were to weaken due to more vehicle imports,the rupee would depreciation.if the rupee depreciates, imports reduce and exporters are motivated ( more $ for each Rupee).

This increases exports.. increases employment and GDP. When GDP increases more income amongst the ppl of the country.will increase demand for goods and services. that results in the ability of ppl to import more goods, its all circular and interrelated.. you cannot alter equilibrium and fundamental economics !

9. SQ Mar 11
As FB points out, taxes alter consumption. However relative taxes alter relative consumption.

More imports put pressure on the rupee, making imports progressively more expensive regardless of what is imported. If for instance, keeping all things constant, lowering taxes on MV increases the import of MV, the exchange rate will reflect a weakening of the rupee, making all imports, including wheat more expensive.

Taxing luxury goods such as MV makes them more expensive, and serves to deter their import, altering consumption and ultimately the composition of the nations imports.

Ideally import taxes are a tool to alter relative preferences and for instance, make essential goods comprise of a larger proportion of imports. Essentially, to ensure the freedom of the poor man to eat bread at the expense of a rich man driving a cheap car.

Whilst i'm all for a cheaper car, the ramifications of what is being proposed here should be understood with due diligence. Otherwise we will end up with expensive bread and expensive cars as we do now!

8. rice pudding Mar 09
Between a bus - (where you are sure to get sexually harrassed) - and a three wheeler - with polution fumes in your face, Sri lankans dont have an alternative reliable and affordable transport option. affordable cars are one solution. and not having enough roads is a bad excuse.
7. Mfz Mar 09
SQ's argument has some indepth meaning. sudden reduction in taxes will bring down the asset values of the vehicles already in the roads. Leasing companies will definitely get a very hard slap, with very high number of defaults and etc..etc..if gov't wants to go ahead with the sudden tax reduction only thing they can carry out is to repay the taxes collected already on vehicle imports.

But a tax reduction is vital for Sri Lankan motor industry, to improve the general economic and industry wise business activities and to enhance the living standards of the middle class Sri Lankans. A tax rate to optimize the pros and to minimize the cons on the macro economy can be suggested..otherwise a crisis like sub-prime crisis is inevitable, with high very high NPL ratios, yards filled with recovered vehicles, bankruptcy filings etc etc...

6. Meerkat21 Mar 09
Fb- True- New car prices are prohibitively high due to taxes but car taxes are tiered, and small cars are not that expensive.

Besides there are plenty of good used Japanese cars for sale - so why buy a new car? Most are only 2-3 years old and are as good as new. New cars depreciate so much most motoring organizations in UK and USA advise buyers to go for a nearly new car than and brand new one- unless you crave for that shiny new number of course.

Perhaps what the government can do is to reduce tax on small cars to a minimum..

The point of having high rate of taxes on new cars is to collect taxes at the point of sale since most people do not pay income taxes in Sri lanka.

Since 80% Tax liable people do not pay taxes, its time to abolish Income Tax and collect taxes at the point-of -sale( GST, VAT) and catch those tax evaders when they come to spend their money on high end items like Luxury cars.

The other point is how poor are poor people? One Norwegian commented on the excessive number of hotels in Kandy after noticing big buildings dotted around the hills. When I told them that they are private mansions he nearly fell off the chair- muttering I don't know why we give aid to Sri Lanka!

Most so called ' poor ' in Sri lanka own land. Today, anyone who has inherited a few acres of coconut land along the coast is a Dollar Millionaire.

5. Arjuna Senaratne Mar 09
As an expat living in Australia, as much as i would like to invest significant funds i am discouraged by this tax system on vehicles. Most of my business parternes feel the same way.

At our age we are used to a having comforatble cars and houses. While the house prices are resonable i am certianly not going to pay 200% tax on a car. This is one of the deterents of investing in sri lanka..and migrating to Sri Lanka....i'd rather be here. Also newer cars have a lot better emmison controls and safety. There are a lot of people who want to move back to sri lanka but we need to fix this retarded schemes.

Another backward thinking step by the government and people of Sri Lanka

4. Sunil Mendis Mar 08
This story got a basic figure wrong. The tax on cars (including all the levies) is in excess of 300 percent. The actual tax is even higher because of the method adopted by the customs in determining the import value of a vehicle. Customs do not accept the CIF price paid by the importer. Besides, Sri Lanka is probably the only country in the world which slaps a higher tax on vehicles fitted with air bags which are meant to protect passengers in the event of a collision.

There is a strong political argument for not lowering car import taxes. Most of the people who can afford a new / reconditioned car must be UNP. Senior government employees already own cars imported on duty free permits. So why reduce duty and help the UNP.

3. fuss-budget Mar 08
The lack of roads is not a reason to restrict car ownership. Anyway the richest people already have cars, they cannot be restricted by taxes. Only lower income people's rights and freedoms are taken away by the state through import duties. This is the same if you put tax on wheat for example. The rich will anyway eat bread, only the poor's freedom to eat wheat will be taken away.

This is the oppressive nature of the whole game, which we seem to take for granted without question. The government should build roads. It is its job. Surely Rs17bn in car excise taxes should have given enough money for roads. Massive taxes on petrol also give the rest.


2. Vindy Mar 08
A good move, although the state receives less revenue and people of Sri Lanka are deprived of a car ownership. The road system cannot cope with more vehicles.
1. SQ Mar 08
Vehicle taxes in SL are indeed prohibitively high. This has caused over the years an asset bubble, due to a perceived inelastic demand. The current economic crisis saw a slackening of demand for motor vehicles, and a further tightening of balance sheets by finance companies dealt a double blow to the MV trade.

However, any reduction in taxes will also impact the value of vehicles already imported and any diminishing of value will affect all vehicle owners. It will have a rollover effect on the value of assets financed by finance companies - housing market asset bubble style, and a sudden reduction in asset value will not bode well to the economy.