Heavy losses to state coffers from ‘grey’ luxury car imports

Sri Lanka is losing millions of rupees in tax revenue owing to the imports of luxury cars made to suit cold weather conditions by classifying them as used cars taking advantage of loopholes in the Customs import duty structure, Treasury sources revealed.

Customs value a used car at the manufacturer’s selling price for a basic vehicle discounted at 15 per cent.

Grey importers purchase new cars in the UK, register and deregister them there to qualify it as a used car to benefit from the discount, a senior Treasury official said adding that the Finance Ministry has received complaints of this malpractice from franchise luxury car dealers in the country.

These importers being benefited under the present system as import duty is computed on the basic car, but additional specs and options billed by the manufacturer, which increase the final invoice price by 30 per cent or more, are not taken into account into the valuation, he explained.

The BMW X5 M Sport is the most popular BMW model imported to Sri Lanka. The manufacturer’s price of this luxury car is Rs. 10 million, a local franchise luxury vehicle dealer said adding that the total cost to import such vehicle is Rs.31 million.

Grey importers are selling this vehicle at a price of Rs. 23 million, he disclosed pointing out that they classify these imports as used cars.

So, Customs deduct 15 per cent from the basic price and taxes 104 per cent thereby incurring a heavy revenue loss for Sri Lanka, he added.

After China, Sri Lanka is the second-largest grey imports market for BMW and generates the most number of complaints due to the proliferation of grey imports. It’s affecting the luxury brand’s image, he claimed.