Sri Lanka car market crashes expecting duty cut in November

ECONOMYNEXT – Sales of unregistered cars slowed to a crawl last week following strong indications from Prime Minister Ranil Wickremesinghe that the Sri Lanka will reverse the tax increase on small cars and even mid-sized sedans will become cheaper later this year.

Buying interest had all but evaporated last week and dealers with large fleets of cars imported prior to the tax increase were at pains to explain they were still selling at the old duty rate. However, there were very few takers, a dealer at Kohuwala said.

Duty on a hot-selling Suzuki Wagon R went up by 425,000 rupees from August 1, but dealers said even at the old price there were not many takers.

“Prime Minister’s remarks has put the brakes on the market,” dealer Prasanna Cooray said. “we are struggling to move the stocks we have.”

Car dealership had taken out advertisements last week saying they were still selling at old prices after observing the sudden drop in inquiries.

When Finance Minister Mangala Samaraweera announced he was slapping the new duty on cars imported after August 1, there had been a frenzy to open letters of credit before midnight that day to take advantage of the old duty rate.

However, official sources said the government was not going to allow the tax concessions for cars imported with letters of credit opened on August 1 and the cut off date would be July 31. This mans the thousands of importers who rushed to place orders on August 1 will now have to pay the higher duty.

Minister Samaraweera sharply raised taxes on small hybrid cars following Central Bank of Sri Lanka pressure to put the brakes on the top-selling Japanese Kei cars, the smallest street-legal cars that have  out-numbered even trishaw imports this year.

Both Samaraweera and Central Bank Governor Indrajit Coomaraswamy have maintained that the higher tax slapped from August 1 was not intended to raise revenue, but to discourage imports and ease pressure on the exchange rate.

Prime Minister Wickremesinghe told parliament shortly afterwards that the taxes were a temporary measure and he hoped the trade balance would improve by the end of the year when the government could reverse the high taxes.

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“Car duties can be brought back to what they were before August 1 or even reduced further, especially for the mid-size cars below 1,500 cc category,” an official source said.

He said the 2019 budget, an election oriented appropriation bill,  could have more measures to buttress Minister Samarawera’s “green, clean” vehicle policy of encouraging electric and hybrid vehicles. Moves to discourage diesel use are also expected with a total ban on the import of diesel powered vehicles for private use.

The Central Bank of Sri Lanka officials said there was a foreign exchange outflow of 195 million dollars to import cars below 1,000 cc engine capacity in the first five months of this year, dramatically up from 26 million dollars spent in the corresponding period last year.

The mid-sized cars below 1,500 cc also saw a rapid increase going from 20 million dollars in 2017 to 73 million dollars this year. Gasoline powered Sports Utility Vehicles (SUV) also saw a surge this year. Imports of the high-end SUVs cost 8.8 million dollars this year, compared to just 2.6 million dollars spent last year. (COLOMBO, August 18, 2018)

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