New customs duty valuation to discourage motor vehicle imports

The new customs duty valuation proposed in the Budget 2016 will come into effect shortly, greatly reducing the number of vehicles coming into the country.

The new customs duty valuation proposed in the Budget 2016 will come into effect shortly, greatly reducing the number of vehicles coming into the country.

“It will come into effect shortly and the imports of electric vehicles and vans will go down 100 percent,” Vehicle Importers’ Association of Lanka President Sampath Merenchige said.

Speaking at a press conference organised by the Finance Ministry, he added that taxes of vehicles above 1,000 cc will go up by 10 percent and those below 1,000 cc will increase by 20 percent.

Merenchige added that taxes on electric cars will go up by between 5-50 percent and taxes on vans will go up by as much as 85-150 percent depending on the models.

However, despite the decreased demand the government is expecting in order to reduce congestion on the streets, Finance Minister Ravi Karunanayake said that the income from vehicle import taxes will increase. “We have calculated the reduction in demand from taxes into our projections and we are expecting Rs.240 billion in vehicle import taxes for 2016,” he said. However, a recent analysis into vehicle registrations said that the decreased demand would bring in taxes of just Rs.180 billion. The vehicle import tax income for 2015 was Rs.232 billion and in 2014, during the previous government, it had been around Rs.117 billion.

“This is the first government in history to which we have paid such high taxes,” Merenchige said. The budget proposal said that taxes would be added depending on a vehicle’s engine displacement, while the budget revealed that in order to stop devaluation of vehicles at Sri Lanka Customs, the government had been valuing vehicles at a ‘full option’ value of a manufacturer.

Customs Department Director General Chulananda Perera explained the rationale behind charging taxes at the ‘full option’ value. “There were allegations by Member of Parliament Anura Kumara Dissanayake of devaluing a consignment of Prados for certain individuals.

There was no devaluation. The Customs Department followed protocol to the fullest. But there were some problems over the add-ons,” he said.

The batch of Prados had been imported in February 2015 on a permit basis, with a concessionary tax of Rs.5.1-5.2 million, as opposed to a standard non-permit tax of Rs.8.8-9 million.

Perera said that the full value of add-on options had not been disclosed by some as they had stated a depreciated value for usage and taxes in Japan, and when the individuals had gone to the Hambantota harbour, the Customs Officer in Charge had not allowed the vehicles to be released.

“The maximum possible tax for add-ons in a Prado is Rs.1.6 million and the fine for not disclosing is double the rate of a full option vehicle. So as a quick solution, the Finance Minister asked them to deposit a Rs.3.2 million figure as a guarantee and take the vehicle out while investigations continue,” he added.

He said that with the requirement of declaring a brand-new full option value, the fines had become defunct.
“We found Rs.320 million in extra income from converting fines to taxes,” Perera said.

Karunanayake said that with the new full-option tax, a Prado’s taxes had increase from Rs.5.2 million to Rs.6.7 million if imported with a permit.

“There were devaluations happening during the past government. No one asks about that. This is done by a select group of people to undermine our government,” he said.