Increasing the Vehicle Tax: middle class left in the lurch?

9 April 2012 04:37 am - 0     - {{hitsCtrl.values.hits}}

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The recent increase in vehicle imports will be the main case in point for this article devoid of the economic predicament many citizens in the country are facing.  For the purpose of this article the sole focus would be on the recent tax hike that left many reeling in shock and an equal number licking their fingers waiting to latch on to the future profits that would fill their bank accounts.
The Ministry of Finance and Planning on the 31st of March with no prior notice increased the manufacturing tax of all vehicles except what it termed as “commercial vehicles” to be in effect forthwith.
The increase affected all classes of vehicles excluding agricultural tractors, busses, lorries, and trucks. The move was justified in terms of reducing the consumption of fuel and the fact that Sri Lankan roads could not sustain the ever increasing vehicles that are used day in and day out.
This justification was reiterated by the Cabinet spokesman Lakshman Yapa Abeywardena at the weekly cabinet briefing. Speaking to the media, the minister said the above two reasons were the major contributing factors.
Leaving out the IMF jargon that has been raised by many members of the opposition, it is worthwhile to focus on the official reasoning provided to the public at large. What has to be understood at the outset is that the tax increase is based on a pyramid wherein the lowest classes of vehicles have been taxed the most while the pyramid highest classes of vehicles – the Mercedes, BMWs and the Prados have been taxed at a discounted rate as per the classification of engine capacity provided by the Ministry of Finance and Planning.
The first reasoning provided was that the tax increase would help curb the excess fuel consumption that the country so badly wants to preserve. The crux of the matter is that any bystander on a road in Colombo – if Colombo is to be taken as a microcosm of vehicle usage in the country - would no doubt witness an unprecedented amount of those termed as luxurious vehicles passing by.
The Prados, BMWs, Monteros and Mercedez passing by would very clearly be only on par with the trishaws and motorcycles that keep every motorist on high alert. The matter is that these vehicles are the main culprits in terms of fuel consumption. The recent increase in fuel prices has played no deterring role with the vehicles going on about their usual day to day business unperturbed and seemingly unaffected.
The amount of money spent on fuel for a single day in some cases being sufficient to sustain a family of three for one whole month according to the Minister of Education is a point to ponder, if not lament. Why then have the ‘high classes’ of vehicles been taxed so low? Should not the tax system have worked the other way around?
One may argue and in fact statistically point out that the Colombo microcosm is invalid. So let us assume that the luxurious classes of vehicles are confined to the streets of Colombo and that a sizeable number of citizens residing in other parts of the country own a vehicle of some sort.
Is it going too far to say that even in this case the analysis would negate the reasoning provided by the Ministry?
Is it not the case even under this assumption that 20% of the luxurious vehicles would consume 80% of the fuel whereas the 80% of the vehicles termed as non-luxurious or common man’s vehicles only consume 20%?
It would be hard to think that an owner of a Maruti could not afford  to pump fuel everyday and even if they could, the fuel efficiency is such that the total usage would be negligible in comparison to that of the luxurious vehicles. This is even more so for the trishaws and the motor bikes as both are considered the most fuel efficient mode of travel by consumers and pundits alike.
Let us then move on to the second argument - that the move would help curb the vehicle imports to the country. Again, the point would seem to render this argument invalid. The fact is the highest number of applications for imports would most certainly be for vehicles that fall into the above classes.
A recent exposure by a leading Lankan daily newspaper pointed out what it termd a “privileged class” of vehicles being unaffected by the recent tax hike.
The “privileged class” of vehicles includes vehicles for politicians, public servants and professionals who according to the newspaper account for the highest numbert of applications received for imports this year. How does this help to curb traffic or ease congestion? It would be evident to anyone that the trishaw, motor cycle and the other classes of ‘common man’s vehicles’ take considerably less space than those that fall into the ‘privileged class’ of vehicles.
How then is this argument valid if the imports of these vehicles continue to rise while there is heavy duty added to the other vehicles under the veil of “easing traffic”?  Of course it goes without saying that the applications are in fact for “duty free’ vehicles.
How then are we to believe the justification provided for the increase in taxes? The social equity in taxation seems to have gone hay wire and, again nobody seems to notice and nobody seems to care.
However, despite all the discomfort and frustration the common man has to abide by the regulations and it is indeed as ironic as an issue could get, the government is yet to provide clear comprehensive guidelines as to the exact effects of the tax.
What happens to the vehicles that have already been paid for and stuck at the port awaiting clearance? What is the effect of the taxes on vehicles for which an advance has been paid or vehicles that have already been shipped by the manufacturers? What effect does the tax have on vehicles for which letters of credit have been opened? The country is yet to know.  What is clear is that one section of the population is getting away and the rest have been duped, and that too quite significantly.
The increase on tax would have little or no effect on the poor and the destitute because for them finding their bread and butter takes precedence over all else.
However, the middle class are left destitute; the man who wants to buy a trishaw to sustain his family or as a secondary mode of income has no option but to stall his plan, the dream of buying that Maruti and moving on to buy the next car in line seems to have been washed away with no regard whatsoever.


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