Motor traders say used car prices are to go up by revising depreciation value
The two development banks in the country were unable to raise US$ 250 million, while the (inefficient) Bank of Ceylon (BOC) managed to raise US$ 500 million, Treasury Secretary Dr. P.B. Jayasundera charged, delivering the keynote address at a seminar on the National Budget 2014 organised by Department of Inland Revenue a few hours after the budget on Thursday.
“What kind of banks are these (DFCC and NDB)? NDB and DFCC too very sophisticated with eminent boards but they can't raise US $250 million. The BOC, which is being criticised for being a state bank, raised double that amount – because of the size and strength of its balance sheet.” He added that the message he received from the roadshows that these entities went on, is that our financial institutions are too small. “At least I got the message and I hope they did as well. They question, Mr. Treasury Secretary, are you running microfinance in Sri Lanka – that is the question they ask.”
Visibly charged, he exploded, “I am more proud of what NSB raised than winning the war!” pointing out that there’s a proposal to reform financial institutions in this year’s budget, Dr. Jayasundera said that opening branches outstation isn’t banking. “These sorts of things just add to the cost structure of banks, making them inefficient.”
Dr. Jayasundera added that in the legal system, tax cases have been heard for centuries. “I can’t see the logic in this because I thought the non-payment of taxes is a criminal offence, but these offences are entertained for years. If the banks can’t perform Parate (Execution) isn’t the answer. Everything is appealed and by the time the case is heard, the judge and lawyer has been transferred. Who pays for these? It’s the genuine taxpayer who pays. This must change.”
Bashing the Inland Revenue Department, Dr. Jayasundera called for those in the department to be sensitive. “Please talk to people, listen to issues and try to accommodate them. Don't say it's in the law. Don’t create space for people to lobby, as this allows room for corruption." He also cautioned not to let the pressure build. "Be simple. Tax departments all over the world have one mindset. They are insensitive.”
Observing that Sri Lanka has a small economy with small people and entrepreneurs, Dr. Jayasundera said that what is needed is a quick and simple response. “My humble request from my colleagues, particularly those in the Income Tax Department, is to please be sensitive to the client – the taxpayer – our king, the people who pay our salaries. If we do that, even without many changes, tax revenue will increase. People don’t pay tax because they don’t want to come to you. In a way it is politics, you need to win their confidence.”
Meanwhile attending the post budget presentation held at the Cinnamon Grand in Colombo last Friday, Secretary to the Minister of Finance and Planning Dr. P.B Jayasundara said that in our country when tax works better, the country works better.
“Sri Lanka is in an environment where the growth rate is maintained above the nominal inflation. We are not talking about the real economy growth but the growth rate that is maintained at about the headline inflation which is what the structural shift we have maintained. We had growth rates of 4-5 % until recent times and inflation was 10-12%. Now the country has moved onto 6-7% inflation and this year it has moderated to single digit inflation,” said Dr. Jayasundara.
He added that the governor has made his commitment to engage in the monetary policy to move towards maintaining mid single digit inflation while the country is witnessing buoyant steady of 7-8% growth. We hope that the private sector will work on this environment steadily he said.
Tourism, exports, construction, small and medium enterprises (SME’s), education, health industries have to pay 12% business tax. Local banks which used to pay 37% and earlier 55-60% tax, now have to pay only 28%. The system is made simpler. For the time being 12-13% revenue ratio is manageable or affordable for the country, he noted.
The prices of used vehicles including hybrids will be increased by Rs. 200,000 upwards as depreciation value for cars has been revised from 2014 budget, motor traders said adding that their sales will come down drastically pushing around 200 used motor car dealers into further difficulties.
They noted that according to the revised depreciation table, the value of vehicles more than one year old and less than two years would be 90% and .the earlier value was 70 percent and 75 percent. The value of 6 to 12 month old vehicles will go up by 10 to 20 percent and the used car importers will not get any discount under the new duty arrangement proposed in the budget they added.
The customs duty of 2012 Toyota Aqua hybrid would be increased by 200,000 to 260,000. Final selling price also would be increased roughly by same amount. Increase of Honda Fit would be increased by 185,000-245,000 and the price of prius and insight would also be incra4sed they disclosed. .
But a senior finance ministry official told Business Times that this move is aimed at increasing Sri Lanka customs revenue and curbing the under invoking practices of some used vehicle importers. He disclosed that brand new Japanese vehicles had been imported to the country under the guise of six to 12 months old used vehicles by de-registering it to claim the 10 and 20 percent discount on depreciation value .
Tilak Gunasekera, President of Ceylon Motor Traders’ Association (CMTA), who is also the CEO and Executive Director of Sathosa Motors Plc, told Business Times that the government will be able to increase tax revenue by strengthening the import duty system based on depreciation value.
He noted that a vehicle depreciates in value whether it is used or not, from the date of manufacture with the aging of the vehicle.
“New vehicles kept in show rooms for demonstration purposes for around 1 year in Japan are also sold much cheaper than new vehicles as the aging of the vehicle results in depreciation in value, although they have not been run," he explained. In the circumstances it is justifiable to levy 100 percent duty on such imports; he said adding that franchise motor traders cannot get such discounts as they have to pay the actual price of the brand new vehicle.
A leading automobile dealer in Colombo said that used vehicles for export are de-registered by the relevant authority in country of export prior to the shipment, which suspends its usage.
Often these vehicles are shipped 1 to 2 months after de-registration where such vehicles also depreciate in value due to the aging process, he said. The practice of under invoicing could be curtailed with the implementation of the 2014 budget proposal, he added.
However he said that the prices of used vehicles will go up as result of the new arrangement and it is unavoidable.