ECONOMYNEXT – The government is likely to reduce the prohibitive taxes on small cars and offer greater incentives for electric vehicles in the first budget to be unveiled by minister Mangala Samaraweera in November.
Minister Samaraweera has already promised a "leaner, greener" budget ahead of possible local council elections that could be held as early as January or at least before the end of the first quarter of 2018.
Former finance minister Ravi Karunanayake had jacked up taxes on vehicles across the board in his 2016 budget as the country faced a serious balance of payments crisis on a mistaken notion that imports, rather than money printing by the Central Bank caused the crisis.
Following a successful IMF bailout and monetary policy measures to stem the flow of foreign exchange out of the country, policy makers have been considering a more pragmatic tax structure for vehicles.
Officials noted that the volume of government revenue increased when the new administration shortly after coming to power in January 2015 sharply lowered customs duties on cars as well as other vehicles at a time when imports had just started to pick up.
The government also gave a hefty salary hike to state workers, and many families with a state worker employees made a beeline to the leasing company.
The number of car registrations which reached a high of 105,628 in 2015 dropped sharply the following year to 45,172. This year, only about 23,000 cars were registered in the first eight months underscoring the revenue loss.
Electric cars are likely to be offered more incentives as the government has already begun an ambitious program which offers subsidised credit to set up solar panels to harness electricity from the sun.
Electric cars, which came in virtually tax free at one time, were taxed again by the current administration because they found to be a typical ‘Greenscam’ tax-avoidance scheme for richer families who were able to buy a second car paying little or no taxes, while even motorcycle owners were paying tax.
Electricity produced in Sri Lanka is about 40 percent by coal.
"Any concessions for electric cars will be aimed at utilitarian vehicles and not the expensive electric sports models," an official said.
Several new car importers had already begun offering hefty discounts on small 800 cc engine capacity cars fearing that they may be left wth inventory left imported at higher tax rates.
The introduction of a new Nissan Leaf electric car has seen a sharp drop in the second hand value of these vehicles in the local market and dealers noted a sharp decline in the demand.
Only 10 Nissan Leaf cars were registered in August this year, compared to 44 a year ago. From a high of 459 Leaf cars in January 2015, it has now dropped to about 10 a month despite the tax advantage for this category.
Last month, minister Samaraweera slashed tax on single cab vehicles by 300,000 rupees and also lifted the 100 percent ad volarem tax on small motorcycles, mainly those imported directly from Japan. (COLOMBO/Sept 23/2017)