U turn!

By Uditha Jayasinghe

Motor industry is poised to have mixed results following the increase of duty as much as 27% on imports by the Government yesterday.

According to the latest reversals small cars of 1000cc or less have been hard hit with their duty being increased by 25%.

The duty, which had reduced to 95% after taxes were slashed last year, has now been increased to 120%.

Similarly, 1000cc-1600cc capacity cars have been increased by 9% moving from 119% to 128%. Even three-wheelers will feel the pinch as taxes have risen by 12% from a previous amount of 38%-50%.

Interestingly the hybrid market that has gained strong popularity will also be affected with taxes that have increased by 12%. Earlier the amount was 38%, which with the new revision will bring the overall amount close to 50%. Industry experts expressed disappointment at the government’s unclear policies since they have also at the same time reduced the age of used car imports, ostensibly to protect the environment. Earlier, cars that were three and a half years could be imported. Now this has been reduced to two years.

However contenders to the new policy point out that if the government really wished to protect the environment they should have kept duty prices for hybrid and small cars lower since that would have automatically prompted people to import new cars and have minimum impact on the environment. Customs have recorded over 3000 hybrid car imports in the past two months — a massive jump from the 426 that was tallied in 2010. Moreover excise duty was raised by 8% on small hybrids, which is expected to result in an added increase on top of the taxes.   

“Obviously prices are going to increase with this change,” remarked Ceylon Motor Traders Association President Thilak Gunasekera to the Daily FT, adding that the market should expect ups and downs in this manner. “We cannot expect the government to keep taxes low all the time. Nonetheless it is difficult to predict the impact of this change since it is not high enough to clamp down on imports.”

Observing that this would create a more level playing field where small and large vehicles would be taxed at the same level he also pointed out that the second hand market will regain its prominence. “There was a huge drop in sales for second hand vehicle importers that will now be reversed. They will be able to sell their cars that have been in storage since taxes were decreased by 50% in the middle of last year.”

The increase of imports, which grew by 225% in 2010, has created a stagnation in the market according to Gunasekera and practical considerations such as the roads being unable to handle the additional traffic was also highlighted by him as possible reasons for the government increasing taxes.        

Motor stocks dip    

Midst early reports investors yesterday reacted negatively to fortunes of motor stocks following the Government’s decision to hike import duties.

The price index of the motor sector dipped by 4%, more sharply than the benchmark ASPI’s 1.5% slide. All leading stocks declined though relatively on small volume of 109.228 shares transacted worth Rs. 86 million via 242 trades. Market’s overall turnover was Rs. 1.5 billion.

Motor sector darling DIMO dipped by Rs. 85.40 to close at Rs. 1,618.30 whilst its lowest was Rs. 1,600 after peaking to a high of Rs. 1,705.

Asia Wealth Management attributed the dip in Dimo to “panic selling.”

Following duty reductions last year all companies have reported massive rise in sales as well as profits propelling valuations and share prices. With proper assessment of the impact today, some analysts expect a further dip in prices though others said motor stocks will rebound.