Lubricant industry to pass tax increase impact to customers

Manager Finance & Planning at Chevron Erande De Silva, GM Sales at Chevron Bertram Paul, Director/CFO at Chevron Anura Perera, CEO/MD at Chevron. Kishu Gomes, CSE Chairman Vajira Kulatilaka , CSE CEO Rajeeva Bandaranaike and CSE Director Moksevi Prelis at the CSE bell ringing ceremony yesterday

„„By Chandeepa Wettasinghe The lubricants industry will be completely passing on the effects of the value added tax (VAT) and Nation Building Tax (NBT) increases to the customer, the country’s lubricant market leader said.

“We will be passing it on to the customer. I don’t think it’s just us, but the entire lubricant industry will be adjusting prices,” Chevron Lubricant Lanka PLC Managing Director Kishu Gomes said at the Chevron’s turn at the customary Colombo Stock Exchange’s bell ringing ceremony. However, he noted that Chevron had passed on the declines in prices experienced from the crude oil boom to the customers in the past 2 years as well.

VAT rates rose yesterday from 11 percent to 15 percent, and NBT rates—for which the lubricant industry was not liable in the past—rose from 2 percent to 4 percent, in the government’s attempt to raise an additional Rs. 100 billion to reduce the 7.4 percent budget deficit incurred last year. Gomes, who initially said that 2016 might see a marginal growth in the lubricant industry, compared to the stagnation seen in 2015, later noted that the tax increase may leave the future unknown. “If there will be a decline in demand? I don’t know. Taxes are exempt from a few basic essential items, but they have been increased on all other products,” he said. The 55 million-litre local lubricant market is made up of 13 companies. Chevron, Lanka IOC PLC, and the state-owned Ceylon Petroleum Corporation—the largest three—have local blending plants, while the other companies import their products through agents. Only 27 players are operating in India’s 2 billion litre market. Gomes said that Chevron’s market share has been dropping in recent years in this overcrowded market, especially due to CPC’s continued captivity of the budget market by not allowing private companies to distribute lubricants through the country’s widest service station network. “Despite CPC not allowing distribution, our growth has been good since that started in 2006… we’re keen to stay the market leader but we won’t chase market share. We’re now chasing margin share,” he said. He noted that entities that are gaining a large market share are doing so at a large cost to their profit margins. Further, the sharp increase in vehicle registrations observed in 2015 was through small Indian cars, for which import tariffs were reduced in the interim budget. Chevron’s products are aimed at the more premium side of the market.