Monday, 2 June 2014 00:00
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In an attempt to curb major tax fraud, the Customs Department is to be given the authority to decide the value of brand new vehicles imported into the country. The move comes after investigations revealed that vehicle importers, including leading companies, were undervaluing the vehicles to get a lower tax.
Weekend newspapers reported the Customs would set up a Valuation Committee to decide on the taxes but the move has come under fire from vehicle importers. While reports highlighted the fact that this new step would likely raise costs for luxury car importers, it was also unclear whether others would be affected as well. The new taxation system is expected to lead to a vehicle price increase between Rs. 400,000 and Rs. 500,000, but in turn would also raise the tax revenue to the Government.
One might argue that the Government’s inconsistent, crony-based policy system spawned this lopsided situation in the first place. The permit system, which has been criticised by fair-minded people, allows luxury cars to be imported at reduced duty while the average public have to become debtors to afford a basic car.
Already the Government has forgone a staggering Rs. 57 billion in revenue during the past two years in 2010 and 2011 granting duty free concessions for import of vehicles for public servants. Adding 2012 and 2013 figures would likely make this sum even higher. According to the Ministry of Finance and Planning estimates, the Government had forgone Rs. 38.6 billion due to the exemptions of relevant taxes on vehicles procured by public servants on concessionary duty terms in 2012 and in the previous year the figure is estimated at Rs. 18.3 billion.
In addition Transport Minister Kumara Welgama told Parliament last year an estimated Rs. 6.4 billion was lost in taxes to the Government in 2010 alone. This means that the total amount of losses for 2010-2012 alone is a whopping Rs. 63.4 billion. To put the figure in perspective, this amount would have paid the entire losses incurred by the Ceylon Electricity Board (CEB) in 2012, which would have negated the need to increase tariffs, or would have paid the fertiliser subsidy twice over, or funded the Samurdhi program for 10 years. The unfairness is exacerbated by vehicle rackets that are also largely run by public workers.
Welgama in his previous statement had rather boldly remarked that the Department of Motor Traffic was not solely responsible for the tax loss and cited the Import and Export Controller, Customs, and the three armed forces as being equally responsible. According to Minister Welgama, permits were issued to import vehicle bodies to replace those damaged in the tsunami. Using such body import permits, while importing bodies, other vehicle parts were also imported evading taxes and vehicles were assembled locally.
The Ministry has a ballpark figure of 19,000 such cases using old vehicle registration documents and using number plates of vehicles sold for scrap with chassis and engine numbers engraved illegally. The Minister had also alleged that this is a racket that employees of the Department of Motor Traffic and the Department of Customs have been engaged in for a number of years.
So stopping the rot at the Customs is clearly not enough. The Government must introduce a consistent regulatory system to end vehicle rackets and provide an equitable tax system for the public. Increasing public revenue should not be the only goal; rather it needs to be done in a fair and sustainable manner.
