Vehicle imports plunge could result in deficit blowout: economist

The sharp fall in vehicle imports in January could have severe implications on government’s revenue collection and budget deficit targets in 2016, unless drastic steps are taken to revise tax policy or cut capital expenditure, an economist said.

Vehicle registration numbers in January 2016 halved to 31, 854 units from the peak levels of 61,864 units in November 2015, mainly due to fall in imports of Indianmade Marutis, two-wheelers and three-wheelers amid tax hike, leasing controls and expensive credit. “This will further compound the revenue collection efforts of the Treasury and unless drastic steps are taken to revise tax policy or a dramatic cut in capital expenditure in hard and soft infrastructure, we are heading for a blowout budget deficit in 2016,”Murtaza Jafferjee, head of Colombo-based stock broking and research house JB Securities said.

Despite the Treasury targeting to raise as much as Rs.280 billion from taxes and levies related to vehicle imports, Jafferjee estimates such will fall short by at least 50 percent to Rs.140 billion, if January numbers are an indication of what is to come. In 2015 the government collected Rs.230 billion from such taxes and levies breaking the previous record high of Rs.134 billion in 2011.