By Chaturanga Samarawickrama
Covid-19 has changed many things about every aspect of life; some more notable than others. In Sri Lanka, the pandemic also caused an unusual interest in vehicles and vehicle imports.
Earlier this year, just as Coronavirus took hold of Sri Lanka; the government imposed a complete ban on Motor Vehicle imports. The government cited 2020 foreign currency out-flows as the primary reason for this decision.
With this new rule, even vehicles with already established letters of credit have not been permitted into the country.
The impact of this decision to the Sri Lankan economy, vehicle importers, and other related industries, has not been favourable, according to some. Entrepreneurs who have been in the motor vehicle industry for generations, and those providing support services for motor vehicles have been adversely affected. We spoke to The Vehicle Importers’ Association of Sri Lanka (VIASL) to
Secretary Arosha Rodrigo claimed that there are less than 3,000 motor vehicles in the market, which are not at all sufficient to cater to at least two and half months worth of the demand. He said the figures were discovered throughy a survey conducted by the Association regarding the current stocks of vehicles. Mr. Rodrigo believes that this situation will gravely affect the survival of the trade until the government‘s decision to lift the import ban immediately.
However, the association states that government officials have been provided with blatantly overestimated figures despite the current motor vehicle stock levels. President's Secretary Dr P. B. Jayasundara said the current vehicle stock is sufficient for two and a half years. “We urge the Government to lift the ban on motor vehicles at the earliest for the mobility of our economy and the development of various industries,” Mr. Rodrigo opined.
It is also their belief that concessions need to be provided for categories such as small motor-cars, trucks, vans and buses. This will enable mobility and development of people-centric economic sectors while giving the motor vehicle importers to survive, Mr Rodrigo said.
“For our economy to move forward transportation and mobility are essential. For that, materialize vehicles such as small and medium-size vans, trucks, buses, smaller motor-cars etc need to be imported into the local market at a very affordable price. At present, there is a huge vacuum in these motor vehicles as the importation has been completely banned.”
They also point that there is a huge community of vehicle importers from large scale to sole trader level. Vehicle importers provide various employment opportunities ranging from accountants, sales executives, marketing executives, drivers, cleaners, security staff, etc. Furthermore, service areas such as clearing agents, interior cleaners, mechanics, car carrier operators and service centres are directly dependent on the importation of motor vehicles. With the current ban in place, these sectors have come across many challenges.
“As there is a ban on motor vehicle imports, vehicle importers, as well as related service providers, have faced severe difficulties maintaining their business premises, paying off bank loans, rent and paying the salaries of their employees,” Mr. Rodgrigo opined.
A trade struggling to stay alive
A large number of showrooms and importers in the country who are without a single vehicle in their showrooms, are now reportedly struggling to survive and to pay their employees. If the ban is to continue further, they will be forced to close down their business and make all their employees redundant.
As per the calculation carried out by VIASL, around 100,000 direct and indirect employees will have to be made redundant if the ban is to continue further. This would mean around 350,000-400,000 dependents of these employees would be facing severe financial difficulties threatening survival,” the VIASL Secretary said.
“The local manufacturing and assembling, however, is not the solution for the issues detailed above. The VIASL strongly believes that this process does not add any value to the country’s economy and is merely designed for tax evasion and higher profit margins. Furthermore, setting up a vehicle manufacturing plant is a lengthy process with extensive planning and research and development. Hence this cannot be set up overnight and needs to be carefully planned in stages.”
New move; tax evasion in disguise?
Mr. Rodrigo opines that all is not as it seems with this new move to ban imports. The vehicle manufacturing and assembling industries have been operating in Sri Lanka for many years. But over the last 10 years, various tax exemptions have been provided with the aim of developing this industry in the country, using locally manufactured spares. These so-called manufactures have merely established a process aimed at tax evasion. Due to this illegal process, the government is deprived of higher amounts of taxes, as the end consumer is not being given the benefit.
“The local assembling companies mainly import an almost finished product and add minimal value to it. Hence the CIF (Cost, Freight & Insurance) value or the amount of foreign currency sent out of the country is perhaps more than the CIF value of a good quality Japanese vehicle; due to economies of scale and lean production mechanisms used in large scale manufacturing,” Mr. Rodrigo explained.
“The import tax however, paid for a locally assembled vehicle, is far less compared to the import tax paid for a car imported by our dealers. For instance, a certain company carrying out local assembly is currently taking orders to supply a so-called “locally assembled” SUV for around Rs. 6 million. This identical vehicle was sold previously by the same company below Rs. 4.8mn after importing it from China. This Rs. 4.8 mn price tag was inclusive of an import tax of Rs. 2 mn. The important matter, here is to note that, the new units sold at Rs. 6 mn is exempted from this import tax of Rs. 2 mn. Hence it is evident that rupees sent out of the country (CIF) is similar or greater to an imported unit while the Sri Lankan government is losing out on Rs. 2 mn worth import taxes. The ultimate victim in this process is the general public who is deprived of a higher quality vehicle as they are forced to purchase a low-quality Chinese or Indian product at an inflated pricem” he explained.
According to Rodrigo the government is not getting the due tax income while the foreign currency outflow might even be greater. Due to the inferior quality of the vehicle, lacking adequate safety and emission standards, sold by these assembling companies, the Sri Lankan citizen is at a loss. At an era where the safety of a vehicle and its environmental friendliness is of utmost importance globally, Sri Lanka seems to be lowering its standards through this inferior assembling process. Another fact to be noted is that the repair cost is extremely high on a locally assembled vehicle. The aftermarket value meanwhile of a locally assembled vehicle is far less compared to a high-quality Japanese vehicle.
“It is evident that there is only a very small market for vehicle assembling in Sri Lanka. Considering our inexpensive labour cost and the geographical location the primary objective of this industry should be to create an export market by inviting large-scale vehicle manufacturers into Sri Lanka. So far, the intended objective of the government, in promoting vehicle-assembling industry using locally manufactured parts had not been achieved and this process has not generated any export revenue,” he said.
Unusual hike in vehicle prices
Meanwhile, Vehicle Regulation, Bus Transport Services and Train Compartments and Motor Car Industry State Minister Dilum Amunugama said the government’s decision of temporarily suspending the importing of vehicles, cannot control the escalation of prices in the second-hand vehicle market.
“If our country is not receiving any foreign exchange, measures should be taken to control the outflow. That is why the government decided to hold all vehicle imports temporarily,” he said.
The government has nothing to do to control this situation, because the Government Treasury should take measures to manage the situation in the country. Our country cannot face this pandemic situation by encouraging vehicle and other imports. Therefore, importers have to withhold all imports until the country achieves a stable situation,” Amunugama further explained.
However the second-hand vehicle market has shown an unusual surge in prices. "In the current situation, customers should act wisely. This suspension is not permanent. This had to be imposed to stabilise the cash flow to some extent," the State Minister said.
"After imposing this temporary suspension, the value of the Rupee remains at a satisfactory level. This has occurred following the COVID-19 pandemic situation. As soon as the pandemic situation is brought under control, the suspension to import vehicles would be relaxed," Minister Amunugama added.