In early 2011, the government eased taxes on vehicles being imported to the country. Following the decision made by the government, importers and individuals imported thousands of vehicles into the country. When it reached a peak, the government again increased taxes mainly targeting hybrid vehicles.
This recent tax increase on vehicles had put the buyers in a grave shock, especially due to the staggering increase of taxes for vehicles under the 1300cc category a buyer who is between the middle and the lower class would target to buy.
The increase in tax for vehicles under this category had resulted with the value of the vehicle going up by Rs.1 million. Most of these cars are small in shape and are mostly referred as ‘Hatchbacks’. The price of a family motor car will rise from a minimum Rs.1.2 million to nearly Rs.5 million according to their CC capacity which would be unaffordable for a middle class family.
Heated arguments took place between customers and representatives of vehicle agents in Colombo immediately after they got the news about the tax increase.The charge by the vehicle buyers was that the agents and motor dealers were stocking the vehicles and not releasing them in time as they were aware of the tax increase for what they had paid initial installments.
Most of the people had paid installments in order to buy small family cars under the 1300cc category. They had paid their first installment in November. Since then they had been visiting the relevant showrooms on a weekly basis to check whether the vehicle shipment had arrived.
With the increase in taxes those who had paid for and booked vehicles would have to pay an additional amount which is more than half a million to purchase the vehicle.
When we visited a showroom in Colombo last week following the tax increase, most of them who had paid initial installments were disappointed with the move but were firm in getting the vehicle that they have reserved by paying the first installment.
A representative of a leading car agent in Colombo said once the vehicle arrives at the port it is inducted into the system. Only then is the price allocation given. But he said it was not they who increased the taxes. Therefore the customers need not pick fights with them.
It is also mentioned in the agreement that a buyer signs with the car agent when he or she pays the first installment that prices could change due to unavoidable circumstances.
Some customers accused the company for discriminating customers and alleged that certain customers have been supplied with vehicles disregarding the waiting list. But agents and representatives denied these allegations by making a point that all customers are treated equally.
Having one’s own vehicle is a dream that any individual has. The car market was considered steady with the end of the war as cash was flowing into the country and people were thereby improving the living standards of the people. A person who is well above the middle class is however still able to face any challenge brought up by the government as he is able to raise another Rs.2-3 million more to buy his or her vehicle. But it would be difficult for a middle class person to face the new tax increase put on vehicles imported to the country even if he or she is earning a salary between Rs.50,000 -Rs.100,000.
This would result in the buyer having to wait for at least two years to buy a new vehicle.
On the other hand, the second hand market would also regain momentum in a few months time due to the recent tax increase as people who were once keen on owning a new vehicle would now focus mainly on a second hand Toyota or a Nissan that could be bought between Rs.1.5 million and Rs.3.5 million. However car sales and individuals who were selling second hand Japanese made vehicles which were between five and ten years old would not try to increase prices immediately after the tax hike by the government.
If they do, they would also not be able to sell their vehicles. So they would have to wait until the demand rises and pick momentum to increase the prices. But it is learnt that second hand vehicles would go up between Rs.500,000 and a maximum of Rs.1 million.
It is only a week and few days since the announcement was made by the government to increase taxes on motor vehicles. The market is still silent… waiting for someone to start pricing their range of vehicles by taking the new taxes into account. What happens thereafter remains to be seen.