Sri Lanka slams carbon tax on cars, more on older vehicles

ECONOMYNEXT – Sri Lanka’s government has slammed interventionist carbon tax on directly fossil-fueled vehicles including petrol cars that pay heavy taxes per litre, while exempting electric cars which use energy generated mostly from diesel, furnace oil and coal, in Sri Lanka.

Electricity is also exempt from value added tax, though coal from which more than a third of electricity is generated at the moment is taxed at the point of import.

Finance Minister Mangala Samaraweera told parliament he proposed to introduce a carbon tax with the applicable average rates for a motor cycle, car and a passenger bus being around 17 cents, Rs1.78 and Rs2.74 per day, respectively if they are below 5 years of age.

The carbon tax on vehicles is expected to raise Rs2.5 billion with the funds being spent to protect the environment, he said while presenting the government budget for 2018.

At the moment petrol driven cars, three wheelers and motorcycles contribute most to taxes through import duties and petrol taxes. Diesel which is carcinogenic is lightly taxed.

The budget cut import tax on electric vehicles even though most of the island’s electricity is now generated by coal and oil-based thermal power plants after successive droughts reduced hydro-power capacity.

Special night rates have been given by the power utility to charge cars, to make use of coal power capacity.

In Sri Lanka electric cars shift emissions from city roads to Sapugaskande and Muturajawela where most furnace oil driven plants are based and to Norochcholai, where the coals plants are built.

Sri Lanka s planning to add liquefied natural gas powered in the future and move onto greater renewable power later on.

According to the budget, the carbon tax will be imposed on motor vehicles based on engine capacity with rates depending on age and fuel type.

Older vehicles and those with bigger engines will be taxed more.

A 10-year old 1,500 cc petrol car would pay 2,250 in taxes. The carbon tax, developed by Western interventionists, taxes older cars (usually owned by poorer people) at higher rates.

Unlike taxes on fuel, carbon taxes based on engine capacity or age of the cars violates the most basic tax principle of equity as it does not take into account running time.

People who own older cars tend to be poorer or older or both. Some may only run their cars to see the doctor or do weekend shopping, or visit grandchildren from time to time.

People who buy new cars, including hybrids may be to be richer, burn more fuel and pollute the environment more.

The use of all kinds of energy goes up with income. (Colombo/Nov09/2017)