COLOMBO (EconomyNext) – Sri Lanka’s electric car ownership more than doubled in May 2015 to 681 units up from 321 units in April, helped by relatively low taxes and cheap credit, an analysis of vehicle registry data shows.
Data analysed by JB Securities, a Colombo-basedbrokerage showed that 360 electric cars were registered in May 2015, up from 152 units in April. Until Mach 2014 there were only 169 electric cars in Sri Lanka.
In a January 2015 budget taxes in electric cars were cut to 5 percent from 28 percent, but taxes were sharply hiked in hybrids, making electric cars relatively cheaper.
"This has catalysed a massive increase in demand mainly due to financing," JB Securities said in a research note.
Sri Lanka’s interest rates are now at a historic low, which analysts say are out of line with an expanded budget deficit, which has set-off a consumption boom that is hitting the balance of payments.
The demand for electric cars is picking up with more people getting comfortable with the technology.
JB Securities said the January that after the tax cut, absolute prices of Nissan Leaf, the country’s best selling electric car, rose sharply.
"An interesting corollary is the law of unintended consequences has played out," J B Securities said.
"What’s going on? The accentuated demand from Sri Lanka has bid up auction prices of vehicles in Japan."
Before the tax reduction a Leaf was being sold in the local market for around 2.2 million rupees, but the price had gone up to 3.0 million rupees after the cut and higher taxes on hybrid boosted demand.
However electric cars are still cheaper than hybrids, which also became popular over the last two years, due to lower discriminatory taxes than conventional cars.
The law of unintended consequences is one of the most important classical economic principles.
It says that when rulers and bureaucrats try to intervene in people’s lives using the coercive power of the state, several kinds of unintended consequences – usually negative – will result.
To ‘cure’ the unintended consequence more interventions are needed.
Sri Lanka’s central bank which cut policy rates and poured liquidity into money markets intervening in credit markets while domestic state borrowings rose has also generated more credit and imports, putting pressure on the balance of payments.
JB Securities said interventionist taxes on various vehicles was also raising questions of tax equity.
Tariffs on motorcycles were 90 percent, on three-wheelers 105 percent, small cars 135 percent (subject to a minimum duty of 650,000), mid-sized cars 150 percent, hybrids 80 percent and electric vehicles 5 percent.
In absolute terms taxes on a motorcycles was 80,000 to 100,000 rupees, on a three-wheeler 200,000, on a small car 650,000-900,000 rupees, 4 million rupees on a mid-sized car and 2.5 to 3.5 million on a hybrid.
On a Nissan Leaf electric car it was only 200,000 rupees.
"From a tax equity point of view does it make sense for a person buying a Leaf to only pay Rs 200,000 the same as a person buying a 3-wheeler," JB Securities noted.
This was lower than the 650,000 rupee minimum set for small cars, the research note said.
In Sri Lanka taxes are raised by mid-night gazette without parliamentary debate or public discussion, undermining a fundamental principle of taxation, and representative governance.