Sri Lankan authorities have not allowed the import of private passenger cars since the onset of the Covid-19 pandemic in March 2020, with the exception of electric vehicles for migrant workers, BOI and a few other permit schemes. The Government also recently allowed tourism sector companies to import 1,000 vehicles, including 750 hybrid/electric vans.
While the Government has lifted import restrictions on other categories of vehicles such as commercial, agricultural and earthmoving, the strict ban on private passenger cars has created a pent-up demand for them apart from a heavily distorted used car market.
Yes, there are a few locally assembled cars based on Completely Knocked Down (CKD) kits with some local value addition, but this is not adequate to meet the demand. When any item is not available legitimately, desperation sets in and people find ways to smuggle them. Hence the recent detection of 51 illegally imported cars and SUVs by the Customs.
With our forex reserves inching closer to the US$ 5 billion mark, the time is indeed right to reconsider vehicle imports. Car imports do consume a big chunk of our forex reserves, but we also spend millions of dollars on items and food that can easily be locally produced or grown. The latest cars, on the other hand, are not locally produced and importing is the only option.
In this context, State Minister of Finance Ranjith Siyambalapitiya’s disclosure that a committee is studying the possibility of permitting vehicle imports on a priority basis is good news indeed. The Committee is looking into what type of vehicles are essential, whether used (reconditioned) vehicles are to be imported, fuel consumption of vehicles and the capacity of roads, since around eight million vehicles are already using them.
First things first. There are reports that MPs from both the Government and the Opposition are clamouring for duty free car imports again. They apparently want luxury BMW, Mercedes Benz and Toyota Landcruiser V8 vehicles to serve their constituents. The last time it happened, they paid a laughable Rs.1,750 to clear the cars, while the less privileged car buyers had to pay almost 400 percent in taxes and duties on top of the CIF value.
Many MPs also sold their permits for around Rs.30-40 million. At a time when the country is still emerging from an acute economic crisis, MPs must not be given permits to import duty free luxury cars. If at all they need a vehicle, a double cab pickup truck with a slight duty concession is more than enough. But they should finance the purchase themselves without putting their hands into the State’s till.
But there is another category that richly deserves duty free vehicle permits. Now that migrant workers are given permits to import electric cars, the same facility should be extended to professionals in State and private sectors. That would be an incentive for them to stay in Sri Lanka, as many professionals have left the country already for greener pastures. Again, this should strictly be limited to electric cars and SUVs, perhaps up to US$ 100,000.
The import of used cars, Internal Combustion Engine (ICE) or electric, should not be considered at all. It is hard to guess the mechanical condition of these vehicles and in the case of electrics, the battery pack may not be in an optimal state. Used cars require more repairs and spare parts, which adds to the forex burden.
Only accredited local agents of car brands should be allowed to import cars, at least, for an initial one or two years. Unlike the “car sales” which import hundreds of used cars in one shipment, the authorised local agents import brand new cars only on order, on the payment of a Letter of Credit (LC). Even then, imports could be capped at say, five cars each month for an authorised importer for 2-3 years.
While this newspaper has championed the cause of electric cars and called for a complete halt to ICE cars and SUVs, the reality is that our charging network is still not up to par, especially in the outstations. Thus it may be necessary to allow the import of ICE and plug-in hybrid cars along with electric cars at least for two more years while the charging and repair infrastructure catches up. Buy this time, electric cars will also have hit the US$ 25,000 (Rs.7.5 million) sweet spot, which is on par with ICE vehicles.
But even in that case, strict parameters could be drawn up. For example, pure petrol cars and SUVs could be restricted to 1.5 litres and diesel cars can be kept away altogether with the exception of single and double cabs (most of which are diesels). The Government could also immediately auction any cars impounded by the Customs regardless of engine capacity and fuel type, as letting them rot out in the open serves no purpose. This way, the Government will at least earn some revenue.
All local car assemblers should also be encouraged to go fully electric. Three of them already have at least one electric car in their portfolio and the others should be given incentives and concessions to take the same route.
The Government should also explore the possibility of getting an electric carmaker such as Tesla or BYD to install DC superchargers in important locations. Duty and tax concessions should be granted for all types of electric vehicle chargers. Only a holistic approach to vehicle imports will benefit both the Exchequer and the consumer.
