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Govt. yet to figure out ideal tax formula on imported vehicles

18 December 2015 04:55 am - 0     - {{hitsCtrl.values.hits}}

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By Shabiya Ali Ahlam
Although a greater effort has been made by the authorities to expand tax collection to avoid a debt default in the medium term, the head of a Colombo-based research house/equity brokerage said governments are yet to perfect the formula of optimally taxing imported vehicles.
“For the last 50 years, no government has figured out how to optimally tax imported vehicles and the policy has yo-yoed depending on whether the country was facing a balance of payment crisis. The Treasury has a revenue shortfall or reacting to excess traffic on the road,” JB Securities CEO/MD Murtaza Jafferjee said. 

Pointing out that it is due to policy unpredictability that the market has seen “idiosyncratic” and “distortionary” behaviour, Jafferjee stressed it was essential to take into account several key factors when formulating a sustainable tax policy on vehicles.
The first two dynamics that must be considered are that personal vehicles serve a functional need to allow people to be economically active and owning a personal vehicle has a high aspirational value for the expanding middle class.
Noting there is a level of inelasticity for cars, Jafferjee highlighted that the challenge is to set the taxes at a level that maintains demand. 

“If set too high demand will slump due to unaffordability or customers buying an alternative with an equal utility.”
The third element that should factor in formulating a tax sustainable tax policy is that road congestion should not be addressed via higher taxes on vehicles. 
“Congestion is primarily an urban phenomenon and more pronounced at specific times of the day. …pricing has to be implemented in the cities to dissuade users from using their cars especially during peak times. We could be a pioneer by implementing dynamic congestion pricing using the mobile phone ecosystem and triangulate a vehicle’s location and price accordingly,” Jafferjee noted. 
Meanwhile, he stressed that the level of duty should be based on value of the vehicle and not on engine size or fuel type and it must be applied in progressive slabs.

“The inability to collect personal income taxes should not be a justification for higher vehicle taxes as it penalises the compliant tax payer.”
Jafferjee recommended that incentives or penalties for a specific engine technology should be via quantity taxes. He proposed that a less distortionary policy would be to charge an additional quantity tax of Rs.350,000 for a diesel vehicle, while offering a quantity discount for electric cars.
He also said that offering permits to public servants as a remedy for below market wages was not rational. “The recent budget announcement to pay a cash bonus in lieu of the permit was the right policy,” he added.
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See Kapruka's top selling online shopping categories such as Toys, Grocery, Flowers, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,News, Courier/Delivery, Food Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka.

 


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See Kapruka's top selling online shopping categories such as Toys, Grocery, Flowers, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,News, Courier/Delivery, Food Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka.

 


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