After tax hike on small, eco-cars, Motor Traders Association calls for consistent policies

The Ceylon Motor Traders Association (CMTA), in a statement yesterday, called for consistency in policies and measures to ensure sustainable growth of the industry whilst acknowledging revenue and foreign exchange challenges of the country. 

Following is the full text of the CMTA statement issued after the Government revised taxes on small and eco-friendly cars on Thursday.

The Association fully understands the current state of Sri Lanka’s economy, which has been marked by the poor performance of its external balances. The Association also understands that the Government and our economy are unable to sustain a significant outflow of foreign exchange. We concede that the

imports of motor vehicles, which have more than doubled from January to June vs. the same

period for 2017, is a contributory factor towards this.

This situation has added a further strain on the Nation’s current account, which is already seeing an

expanding fuel import bill, given the rising global oil prices.

Concurrently, the Government needs to maximise its collection of revenue from the import of motor

vehicles. The CMTA understands that government policy that impacts the automotive industry is

largely governed by their external balances and their need to collect revenue.

The CMTA applauds the Government’s policies to encourage the import of hybrid and electric motor.

vehicles, such as the Carbon Tax introduced in the budget of 2018, and assures the Government that

this strategy will, in the long run, contribute to a lower fuel import expenditure. The import of fuel is

one of the Government’s largest import expenditures, and much larger in magnitude than the

expenditure on the import of motor vehicles.

The excise duty structure that was proposed in the 2018 Budget had a favourable differential for small

motor cars (vehicles under 1000 CC) which is likely to have driven the strong vehicle growth

experienced in 2018. For Instance, in 2017, according to the Department of Motor Traffic, approximately 60% of all motor vehicle registrations for that year was accounted for by vehicles under 1000 cc.

Subsequent to the tariff revisions proposed in the 2018 Budget, small cars accounted for approximately 86% of all motor vehicle registrations during the first two months of 2018. In addition, this growth in the

quantum of vehicles is likely to have resulted in a significant rise in the levels of congestion, specially

within the cities.

Taking the above factors into account, we understand the Government’s policy decision taken on 

1 August to increase excise duties targeting the small motor cars segment.

While the raising of excise duties is likely to stem the growth for small cars, we believe that this needs

to be coupled with medium to long-term policies that would result in the sustainable growth of the motor industry. This would also reduce the need to resort to such ad hoc excise duty changes, which leads to the ‘stop-go’ nature of new vehicle imports, and uncertainty, and causes a strain on both the consumers and firms in the industry.

The CMTA looks forward to participating in a long-term policy dialogue with the Government so that the

aspirations of the industry and the international manufacturers they represent could be aligned with

the requirements of the Government.

CMTA was established in 1920 and is the one of the most senior automotive trade associations in the region. The CMTA represents all major international motor manufacturers in Sri Lanka.