Vehicle tax collection seen falling amidst drop in sales and under-invoicing
The Government has promised Sri Lanka’s motor trade that a controversial form of taxation on vehicles will only be for a period of two years. This is in reference to the unit rate of excise duty for the vehicles on the basis of cubic centimetre which is expected to raise revenue of Rs. 20 billion, according to government target. But a likely drop in car sales and under valuation could result in a revenue fall, industry sources said.
However a motor trader told the Business Times that Finance Minister Ravi Karunanayake, at a recent meeting with the trade, had given them an assurance that the unit rate tax system will be implemented only for two years. And thereafter the system would go back to the ‘true transacted value’ based taxation, it was reported.
Finance Ministry officials declined to comment on the issues raised by the trade on this tax.
The disputed tax is causing many discrepancies and malpractices resulting in issues for ordinary car buyers and motor traders, several vehicle dealers disclosed.
Finance Minister Ravi Karunanayake previously disclosed that tax revenue in 2016 from vehicle imports is expected to reach Rs. 280 billion from Rs. 230 billion in 2015.
But according to a recent JB Securities market research report based on the current trend of lowering vehicle imports, revenue collections from Custom duties will be around Rs. 140-150 billion this year.
There was a temporary sigh of relief in April 2016 after the government decided to consider the ‘true transacted value ‘when imposing tax on vehicles on a recommendation made by the high powered evaluation committee appointed by Prime Minister Ranil Wickremesinghe.
But this was short-lived following the introduction of a new unit rate of excise duty with effect from May 26, they pointed out.
The price of passenger vehicles has increased by as much as 133 per cent from May, they said adding that the newly introduced unit rate tax has resulted in a price hike on vehicles.
The removal of ‘true transacted value ‘in taxation on vehicle imports has prompted some unscrupulous vehicle dealers to resort to malpractices such as under invoicing, they alleged.
The ‘true transacted value’ is the actual Free On Board (FOB) value of the imported vehicle which includes local charges of every description incurred until the vehicle reaches the port in Sri Lanka.
With the new directive the actual transacted FOB value of the vehicle has been excluded from the new valuation criteria and Customs is using a predetermined value in order to apply relevant customs duties, traders said.
Further the government is also losing tax revenue due to under invoicing, they allege citing an example of loss of tax revenue in a recent importation of a BMW X5 40E SUV which was in the region of around Rs.4.2 million (loss).
They noted that re-conditioned vehicle imports by unscrupulous importers through under invoicing and de–registering of vehicles in countries of origin are continuing taking advantage of the Treasury’s introduction of a unit rate of excise duty.
The Auditor General’s Department has detected fraudulent vehicle registrations and under-invoicing new vehicles as used vehicles. The racket had been going on for years, where newly imported chassis of vehicles were cleared from the Colombo Port and registered under old numbers, a senior official at the Auditor General’s Department told the Business Times.
Adding fuel to fire, certain authoritative officials were trying to change the format of the Certificate of Registration of Motor Vehicle (CRM) by entirely removing the ‘categorisation’ entry when registering a vehicle, for example stating that it is either brand new or reconditioned. The removal of this ‘categorisation’ would allow a reconditioned vehicle to surreptitiously pass off as a new vehicle, the official said.
The disputed tax is causing many discrepancies and malpractices resulting in issues for ordinary car buyers and motor traders, several vehicle dealers disclosed.