Vehicle Importers Association of Sri Lanka (VIASL) in a communique has raised concern over the impact to motor vehicle importation from Budget 2022.
The release says: Import ban to continue
The government has imposed a complete ban on Motor Vehicles since March 2020 citing foreign currency outflows as the main reason.
This has negatively impacted the Sri Lankan economy as well as vehicle importers and all related industries.
As per the national budget 2022 the ban is to continue further.
When inquired about this decision from Finance Ministry officials, we have been informed that importation of vehicles is an area that they have not even considered due to the prevailing foreign currency issue.
Special Goods & Services Tax (SGST) for motor vehicles
Furthermore, an additional Special Goods & Services Tax (SGST) has been imposed for the motor trade. At a time when our industry is struggling to survive, we believe a tax of this nature is extremely unfair.
Due to the high value of vehicles, it will affect selling prices considerably if an additional SGST is to be implemented on motor vehicles.
Amnesty to be provided for illegally imported motor vehicles
An amnesty is being proposed for illegally imported motor vehicles to be registered legally. As per this proposal, vehicles that have come in few pieces and illegally imported vehicles will be given the opportunity to register legally. This is an extremely dangerous practice as some of these vehicles are not roadworthy (passenger safety & pedestrian safety).
Furthermore, it encourages smuggling of vehicles evading import taxes. Moreover, it is extremely unfair on individuals who have paid legitimate taxes and imported vehicles. Normally a vehicle is condemned even when there is a minor chassis damage. However, with this system vehicles with the chassis cut into few pieces would be seen on the road. There are thousands of illegitimate vehicles such as these currently on the road. Legislation such as these will encourage importation of such units even in the future. As a responsible association and law-abiding citizens we oppose this proposal wholeheartedly.
Severe issues faced by vehicle importers and related parties
Vehicle importers have faced major difficulties maintaining their business premises, paying off bank loans, rent and paying the salaries of their employees. Since we have been waiting for more than one and half years for importation to open up, it has brought us to a crucial juncture in which most traders have decided to close down their businesses. As a responsible association we are fully aware of the unprecedented pressure the pandemic has brought upon the government.
Various diverging tactics to control the prices and the frustration of the general public However, we expect a credible survival plan as well as the fullest support of the government for us to overcome our difficulties. Instead, the government has been carrying out various diverging tactics to control the frustration of the general public and the vehicle importers. Last year the government announced that the importation will be “Reviewed in December 2020” and then in March 2021 they announced that they are considering a “Quota system” for vehicle importation.
In October 2021, various statements were made regarding a scheme in which local taxes could be paid in US dollars and vehicles to be imported without a dollar outflow. This system was again discarded by the Finance Ministry due to its obvious drawback of money laundering. It is simply evident that these are strategies by the officials to control the “Price bubble” and to defer the issue in hand.
The truth behind the US Dollar import system that was rejected by the Ministry of Finance Various statements have been made regarding a scheme in which vehicles could be imported through a system where local taxes could be paid in US dollars. However, it is not possible to implement a system such as this without exacerbating the current dollar crisis. As vehicle importers who have been carrying out this trade for generations,we do not recommend such a system as it will lead to various malpractices.
This we believe will result in a reduction of the net dollar inflow, as regular remittances will be sent in the form of vehicles. Such a system will pave the way for few individuals who would exploit this opportunity for short term gains making the future bleak for genuine importers while worsening the dollar crisis.
This is a system proposed by Sri Lankan exporters living in Japan. They have made several pleas to the government to allow them to export vehicles they have purchased and pre-ordered targeting the Sri Lankan market. Hence their main intention is to export out their stock of vehicles using any means possible.
As much as VIASL agrees that they should be given the opportunity to export those units once the country is in a stable situation, we do not agree that this method is the right one. If such a system is to be implemented it will only encourage a system in which Sri Lankan rupees will be sent out illegally through unofficial channels to purchase these vehicles and the import tax to be paid in dollars. It is also a fact that the unofficial rate of the US dollar has far surpassed the official dollar rate of Rs 200 imposed by the Central Bank. Due to this difference in the official and unofficial dollar rate the government is losing out on legitimate remittances as remitting these dollars through unofficial channels has become more lucrative.
Hence, a system in which vehicles could be imported by paying taxes in US dollars will only increase the demand for unofficial US dollars. Consequently, it will further weaken official dollar remittances and create an imbalance in the economy. This will increase the inflation further and price of essential good and commodities will rise to a record high level.
Through various media platforms these Japanese exporters have made several claims that importation of vehicles by paying taxes in USD is the “patriotic” method of saving our country from the dollar crisis in hand. As a responsible association with a genuine interest in longevity we do not recommend a system that would encourage illegitimate remittances. However, VIASL kindly requests these so-called patriots to invest their foreign earnings in Sri Lankan term deposits to strengthen our dollar reserve as opposed to misleading the government.
To be continued
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