How would Budget 2018 affect vehicle market? | Sunday Observer

How would Budget 2018 affect vehicle market?

The recently unveiled Budget 2018 will alter the prices of both, brand new and used vehicles, motor vehicle importers said last week. Budget 2018 has rationalized the import taxes on vehicles powered by fossil fuel with the new formula for import taxes being calculated based on engine capacity, to minimize revenue leakages.

“I feel this system is much more equitable to all segments of the industry, including the customer. From the government’s point of view, the system is transparent and easy to administer,” Managing Director, Innosolve Lanka (Pvt.) Ltd, Sheran Fernando said.

The key change in the 2018 Budget is that, motor vehicle duty will no longer be calculated on values, but on the cubic capacity (cc) of the engine, be it petrol, diesel or hybrid, and the Kilo Watt (KW) output of the electric motor for an electric vehicle (EV).

“We are happy that the government has included almost 75% of the Association’s proposals in the Budget. The calculation of unit rates has become simpler and the tax revisions on the overall are fairly good,” President, Vehicle Importers’ Association of Lanka (VIAL), Indika Sampath Merenchige said.

Price reduction

However, Merenchige, who represents the views of reconditioned vehicle dealers in the country, noted that the only issue is the imposition of duty on hybrid vehicles with engine sizes between 1,300cc and 1,500cc.

It is learnt that under the new Budget proposal, the HS Codes categories of 1,500cc and 1,300cc have been segregated and the impact of price increase will only be on the former and not the latter.

“We are a little concerned that the government has matched the duties for this hybrid category with the rate applied to 1,600cc of petrol vehicles. The under 1,500cc range in hybrids is by far the most popular category to date in terms of volumes, and now it is expected that prices of this range will shoot up making it unattractive,” Merenchige, highlighted.

Hence, he outlined that prices of popular hybrids such as Toyota Axio, Toyota Aqua, and Honda Fit GP 5, and Honda Grace are expected to rise by at least Rs.750, 000.

In some good news for potential buyers, prices of the 990cc Toyota Vitz is expected to slash, by approximately Rs. 1.11 Mn, while the 990cc Toyota Passo is projected to fall by over Rs.1 Mn. However, traders anticipate the price of the 1,290 cc version of Toyota Vitz to rise by Rs. 283,450.

In the luxury category, it is expected that prices of the Toyota Prado will rise by approximately Rs. 5 Mn, Toyota Premio / Allion by Rs 200,000, Nissan X-Trail (Hybrid) – Rs 1 Mn, Mitsubishi Outlander (Hybrid) by Rs 1 Mn, Toyota Prius (Hybrid) by Rs 1 Mn and the 4600cc Land Cruiser by a mammoth Rs. 23 Mn.

Brand new vehicles

Meanwhile, Reeza Rauf, Chairman, Ceylon Motor Traders’ Association (CMTA) representing brand new vehicle dealers said, while there is no change in cars below 1000 cc, the introduction of the smaller gap between the engine capacity and unit rate tax will push up the prices for petrol cars.

Accordingly, prices for cars in the 1500 cc range will rise by Rs. 750,000, 1800 cc and 2000 cc range by Rs. 1 Mn, 2500 cc range by Rs. 3 Mn, 2750 cc range by Rs. 4.5 Mn and for over 3000 cc Sports Utility Vehicles (SUVs) by nearly Rs. 10 Mn.

Welcome move

Meanwhile, the prohibition of the import of motor vehicles below the Emission Standard of the Euro 4 or its equivalent, effective from January 1, 2018 was welcomed by a majority of motor traders. Presenting the Budget 2018, Minister of Finance and Mass Media, Mangala Samaraweera announced that from January, Sri Lanka will follow the environmentally-friendly Euro 4 emissions standard as adopted by European nations.

“The introduction of Euro 4 engine is in the right direction, however, we need to make E4 compatible fuel available island wide. On the other hand, the government should give a grace period for franchise holders who have already ordered vehicles that are EU2 or EU3 which would arrive after January 2018 and get approval from their manufactures for EU4 Engines,” Rauf said.

According to industry experts, most of the Indian and Chinese-made vehicles are not known to meet the Euro 4 emission standard. Further, they also do not have basic safety features like airbags and anti-lock braking systems which becomes compulsory for all imports from next year.

Electric vehicles

Budget 2018 proposed that taxes on the importation of electric vehicles including electric three wheelers, cars and buses will be reduced. According to the Finance Minister’s Budget Speech, import taxes on electric cars will be reduced by at least Rs. 1 Mn while the import tax on the high end fossil fueled cars will be increased by almost Rs. 2.5 Mn.

“With this proposal, the excise duty on vehicles such as, Nissan Leaf (electric car) will come down by Rs. 1 Mn while the price of Suzuki Wagon R will reduce by Rs. 400, 000,” a motor trader who preferred anonymity said.

On Thursday (16), the Ministry of Finance and Planning announced that the tax concession announced in Budget-2018 for the imported, brand new electric car will be extended to cover the used electric cars, which are not more than one year old.

According to a Gazette notification issued by Minister Samaraweera, the duty of used electric cars that are not more than one year old will be reduced by around Rs one Mn. Consequently, the duty rate applicable to electric vehicles (less than one year old ) will be Rs 12,500 per KW power of the motor of the electric car which is less than 100 KW power.

In Budget-2018, the Finance Minister has introduced an appropriate incentive structure to promote importation of vehicles powered by non-fossil fuel. He has introduced a new formula for import taxes to be levied on vehicles based on the engine capacity instead of the ad-valorem rate (CIF Value of the vehicle) rationalizing the tax base on vehicle. In addition, the Loan to Value (LTV) ratio for motor cars which is 50:50 at present will be further relaxed for Hybrid vehicles.

The Finance Ministry has also said, individuals who have already opened Letters of Credit in their names to import vehicles prior to November 9 will be allowed to clear those vehicles at the rate of the duty that prevailed before the Budget.

The government has proposed that all vehicles in the country be powered by non-fossil fuel sources by 2040. To this end, all Government vehicles will be converted to hybrid or electric vehicles by 2025, Minister Samaraweera said in his Budget Speech.