Double whammy for lubricant users

• Suppliers to pass on VAT and NBTincrease to customers
• Volumes bleak with improving vehicle technology
• Says Government cannot grant 25% price reduction with CPC’s new production plant

By Shehana Dain

The local lubricant market is set to have a double whammy as the industry has passed on the Value Added Tax (VAT) hike and Nation Building Tax (NBT) onto the customers from yesterday.

Chevron Lubricants Lanka PLC Managing Director/CEO Kishu Gomes told reporters yesterday that customers will have to absorb the increased VAT rate of 15%, as well as the 4% NBT which the industry was exempted from prior to the coalition budget.

The Government increased VAT by around 36% or four basis points from 11% to 15% with effect from 2 May in a bid to raise Rs. 100 billion as tax revenue.

Furthermore, according to Gomes, the lubricants industry is expected to grow slightly in 2016 compared to the previous year where the lubricants market showed little to no growth.

“Last year’s figures are yet to be released by the Public Utility Commission of Sri Lanka (PUCSL) and based on our gut feeling we believe it will be a marginal growth or no growth in 2015. This year, based on the trends that we are seeing, there may be a slight growth in the market,” he said while making remarks at the bell ringing ceremony on the CSE trading floor yesterday.

When asked as to why the industry growth rates do not reflect the vehicle imports surge in 2015, Gomes told the Daily FT that drastically improving automobile technology directly hampers demand.

“One thing that is working against the volume growth of the industry is that technology keeps evolving. Therefore, the mileage you can do improves and with that you cannot really expect high growth in the industry which correlates well to the population growth and despite very high vehicle population growth the industry hasn’t grown as such,” he explained.

Moreover, he pointed out that the declining vehicle imports in FY16 have not reached an alarming rate as of yet while noting that the persisting trend looks positive for industry.

“There was a time vehicle population growth was around 10-15% and with the successive governments reducing duty it went up to as much as 70% and is down to 30% now. If you compare the past 15 years, the trend is still quite good for the industry,” he said.

Additionally, Gomes highlighted that the price of Lubricants will not come down as expected by the Government with the launch of the lubricants business in affiliation with the Ceylon Petroleum Corporation. While responding to a statement made by the Petroleum Resources Development Minister Chandima Weerakkody, who had said that the move could bring down prices as much 25%, Gomes insisted that while it could impact Chevron’s retail channels it could by no means result in a price reduction of 25%.

“The duty gap between finished goods and raw materials is only 7% so I would ask the Minister as to how he is able to pass on a 25% increase to the customers and if the Government is able to do this they currently have the ability to pass on an 18% price decrease to the customers, so why wait? Do it tomorrow,” he stressed.