Due to the Government’s initiative to offer concessionary duty permits to its senior officials in order to import vehicles for their personal use that concession has not only deprived the government of billions of rupees, but has created an easy way to earn black money by continuing to evade the Tax Department.
Permits are now openly traded with no regulations where permit brokers and vehicle traders benefit with no control mechanism in place to curb it. The Government official (Permit Holder) sells the permit ranging between Rs.1,500,000 to Rs.1,700,000 for which this individual cannot get another vehicle. The permit broker keeps a margin of approx. Rs.100,000 and sells it to the trader with no tax involvement. The trader gets a tax concession of almost 150%. He then imports the vehicle keeping a huge margin and sells it in the open market. The margin could vary from Rs.500,000 to Rs.2 million depending on the make and model of the imported vehicle. This margin or profit is not taxed due to the fact that the documentation is under the permit holder’s name. This is pure fraud!
Within the last few years over 40,000 permits have been utilized and over 80% have been traded to non-permit holders. This amounts to approximately US$ 1 billion of foreign currency outflow and Rs. 40 billion of unaccounted profits to vehicle dealers with absolutely no taxation.
At a time where the tourism industry is rapidly growing, the need of the hour is a good safe transportation system. Many questions were asked as to why import duties on 20 seater vans/coaches were increased. Similarly, the methodology of taxation on small trucks has been changed based on the front suspension structure! This has paved the way only for a few importers to benefit due to the structure of their vehicle models that are on offer.
This raises the question whether there is any fundamental plan to structure the automobile industry to face the future. With no incentives for local manufacturing, there is use no logic in taxation of some of the key drivers of the industry and short-term policies to bridge the budget deficit has widened the gaps in streamlining the whole industry.
In a Developed or a Developing Country, the Automobile Industry plays a vital role, whether CBU imported car or locally assembled. Inconsistent policies have made Sri Lanka a dumping ground, with so-called ‘Re-conditioned’ cars contributing to almost 60% of annual imports. Further due to the high import duties low quality low-cost Indian vehicles have made their way in to Sri Lanka and for some of these brands Sri Lanka being the only export market.
Why has Sri Lanka deprived quality cars to its consumers at an affordable price where public transporting is in a mess whether it is Government or Privately Operated? The rationale for high import duties over the last decade or so has not been clear. In almost all other countries high duty levels are imposed to encourage the local industry. In the late 60s, the visionary entrepreneur late Upali Wijewardena started an assembly operation with Upali Mazda and Upali Fiat at that time. Upali Mazda plant was the very first Japanese SKD (Semi Knocked Down) car assembly plant outside Japan, where Sri Lanka was much ahead even of South Korea or India in car assembly.
Unfortunately, it was never given the due encouragement by the then governments. Had it been the case, Sri Lanka would not have been the ‘dumping yard’ but probably she would have been fairly self-sufficient in vehicles and also achieved certain level of export by now. Similarly, 40 years ago in the bus body building industry, Sri Lanka was a pioneer in the region, but today sadly this industry too is dead and 100% dominated by substandard imported brands of buses for the use of public transportation.
Why is Sri Lanka hesitant in encouraging a local industry in automobiles? Today Sri Lankans have shown the expertise in high quality world renowned brands garment manufacturing, IT software development, business process outsourcing where medical, engineering and accounting professionals have maintained a very high standard. In this regards Sri Lankan university graduates can have a future in a new stream to pursue in Automobile Engineering.
VEGA project is a small example of how 20 local scientists working together to develop a High Tec Electric car. A great initiative but what could be the future when it comes to commercial production?
The second pioneer entrepreneur in Sri Lanka, who is next to Upali Wijewardena, is Micro Cars Founder and Chairman Dr. Lawrence Perera, an Automobile Engineer by profession having over 40 years of experience in the Industry who has been bold enough to produce a completely local automobile named “The Micro Privilege” which was awarded a patent for its design. However, due to an imposing of a tax on the industry it went out of production after approx. 800 units were manufactured and sold.
Had it been encouraged at the time, today the low quality products/brands would not have found its way to our island and many thousands of jobs would have been created by now! After 15 years with over 850 direct employees is struggling to find its path to build a local vehicle. However, globally renowned automobile giants such as SsangYong of South Korea and Geely of China have recognized Sri Lanka and Micro cars for their capability to extend their trust to manufacture under their license.