The Vehicle Importers Association of Sri Lanka (VIASL) in a communiqué urges the government to intervene to end alleged malpractices happening in the local automobile industry.

Revenue leakage

The communiqué alleges that there is firstly a revenue leakage caused due to arbitrary valuations submitted by agents of brand new vehicles and this need to addressed and stopped forthwith.

Local agents of brand new vehicles are taxed on their own valuation that is strictly at their discretion as opposed to the used car importer who has to pay a tax based on the maximum retail price mentioned on the manufacturers’ website the statement alleges.

It says for instance if an identical car is imported by an agent and a used car dealer, the agent will be paying a lower import tax as they are being taxed on a valuation provided by themselves, as opposed to the tax a used car dealer would be paying based on the maximum retail price mentioned on the manufacture’s website. Used car dealers are only given a 15% discount on the maximum retail price mentioned in the manufacturers’ website. This however, does not reflect the actual value or the purchase price of the vehicle since the dealer discount in most cases amount to more than 15%, and the value of a 5-year-old vehicle is considerably lower. Furthermore, this retail price mentioned on the website includes – local taxes, provisions for local warranties, road side assistance, local road taxes and a comprehensive service plan that amount to well over 20% of the price mentioned. Hence these factors need taking off when calculating the actual product value of the said vehicle which is why a 15% discount is offered to used car dealers, even though this should be well over 20%.

Depreciation table annulled

Prior to 2015, a depreciation table was in place for calculating duty of reconditioned vehicles. A 5 year old vehicle was given 55% depreciation from the valuation provided by the agent. However, post 2015, this method of duty calculation was changed and the depreciation table was completely removed when calculating duty for reconditioned vehicles. Instead of the local agents’ valuations, the maximum retail price mentioned on the manufacturer’s website has been considered as the base value for the duty calculation of reconditioned vehicles. The payable duty for reconditioned car importers is the higher of the value calculated as per this method or the unit rate, the communiqué alleges.

After considering all these factors, the Ministry of Finance allowed reconditioned car importers a 15% discount on the maximum retail price mentioned on the manufacturer’s website.

Local agents having a monopoly at Government tenders and supplies

When purchasing vehicles, Sri Lankan governmental authorities are only permitted to buy “brand new” vehicles. Even though used car dealers are also in a position to import and supply brand new vehicles, due to regulations in country of origin, used car importers are compelled to register the brand new vehicle and deregister it to abide by their rules. Hence once this brand new vehicle reaches Sri Lanka, all vehicles imported by used car dealers are registered as “Reconditioned” at RMV. This eliminates brand new vehicles imported by used car dealers from bidding for government tenders essentially giving a monopoly to the agents of brand new vehicles enabling them to quote a much higher price. Due to this reason Sri Lankan government is forced to spend tax payers money unnecessarily.

Heavy losses to government

The government is currently incurring heavy losses as the agents of brand new vehicles are manipulating their valuations and changing them on an ad-hoc basis to suit their needs, the communiqué alleges. They adjust the valuation just below the unit rate (minimum tax) in order to pay a lessor duty than the actual valuation of the vehicle imported. Lack of established system to audit these values submitted by agents is the main cause for this revenue loss the communiqué further alleges.

Furthermore, concessionary permits issued to government servants have become an instrument for these agents of brand new vehicles to misrepresent valuations and to change them according to the concessionary permit value. The statement further alleges.

For instance an inquiry regarding an import tax fraud well over Rs. 15 billion is ongoing involving a well known local agent of luxury vehicles. It is alleged that the authorized representative of this brand has not provided the invoices with true market value to the Customs for the cars imported on tax concessionary permits and had instead submitted fictitious invoices through another company established by the same founder member in a different country.

Similarly some agents of brand new vehicles manipulate their values to fit the USD 25,000 valuation of the concessionary permit, the communiqué alleges.

Suggestion for a uniform duty

Due to these anomalies and unfair practice of calculating taxes the VIASL is suggesting having an identical tax and a valuation for both used car dealers and agents of brand new vehicles for each model of vehicle. This is a huge compromise from the used car dealers since they are forced to pay this same tax even when a 5 year old vehicle is being imported to the country. However, the VIASL is willing to make this compromise to put an end to this massive revenue leakage to the country and unnecessary spending of tax payers’ money.

Lack of safety standards

It is a known fact that manufactures of vehicles, manufacture the best quality products for their domestic market. Since the used car dealers import domestic models of each brand directly from countries such as Japan and U.K. these models are bound to be the best– a fact that has been blatantly misrepresented by the local agents of vehicle brands using unethical marketing tactics the communiqué alleges. All vehicles imported by used car dealers are equipped with airbags, anti lock breaking (ABS) mechanism as well as radar breaks. Especially the most used cars imported from some Asian countries are not equipped with such safety standards.

Most vehicle models imported by used car dealers are below the 1500 cc engine capacity and are hybrid models. Some of them are plug in hybrids or electric cars with zero emissions and limited use of fossil fuel.

In an era where most countries are striving for maximum efficiency the bargaining power of local agents of foreign origin has robbed Sri Lankan countryman of efficient high quality vehicles.

Most of the vehicles local agents import are non-hybrids and fall in to the 1500 cc – 1600 cc category. These are highly inefficient and will one day become a burden to the local economy since Sri Lanka is a country struggling for foreign exchange and the fuel bill accounts to a large proportion of the country’s foreign currency outflow, the communiqué further alleges.

Source: Daily News