The Sri Lankan Government will not have to revise import taxes to curtail the drastic rise in vehicle imports which has been flooding the country over the past six months, since the recent fall in the country’s currency is expected to automatically reduce imports considerably in the next few months, analysts said last week.
The Central Bank recently had said that rapid increase in the imports of consumer durables, including motor vehicles driven by credit available at low interest rates, among other things, had raised some concerns.
According to the Central Bank’s latest External Sector Performance Review for the month of June 2015, a sum of US$ 596.5 million had been spent on vehicle importation from January to June this year as opposed US$ 302.9 million for the corresponding period last year, recording a staggering 97% increase.
In addition, the report added that US$ 118.5 million was spent on vehicle imports in June this year, a 110.1% increase compared to US$ 56.4 million spent in June last year.
According to President, Vehicle Importers Association of Lanka (VIAL), Sampath Merenchige, prices of imported vehicles are expected to see a 10% increase on average resulting in the volume of imports to see a sharp reduction by 40% to 50% during the next couple of months.
Vehicle imports and registration have been on the increase during the most part of this year resulting in vehicular congestion in key suburbs in Colombo and other urban areas in the island. However, the recent depreciation of the rupee against the dollar though expected to hit the importers could be a blessing in disguise for motorists.
“We bring down at least 11,000 brand new and reconditioned vehicles per month on average,” Merenchige said. “However, imports of vehicles would reduce by over 40% if the current situation continues to prevail,” he said.
It was also speculated that the government could hike the taxes through its budget proposals later this year in order to curb the imports. However, analysts pointed out that the move was not necessary at this juncture. “If the current trend continues, then we can expect a drastic reduction in importation of motor vehicles due to this situation,” Merenchige told The Nation Gain last week.
CEO and MD, JB Securities, Murtaza Jafferjee also said that the rupee depreciation would have an automatic impact on the vehicle imports and its prices. “When there is a depreciation of a certain percentage, the cost, insurance and freight value (CIF) also increases accordingly. Therefore, importers will anyway have to pay more when the rupee depreciates,” Jafferjee stated.
Merenchige also said that the continuous depreciation of the currency against the dollar had already resulted in the increase of vehicle prices. “This situation is likely to push the imports of older model vehicles in the future. We are also looking at how to sell the vehicles we already have,” he added.
Transportation expert in Sri Lanka, Prof. Amal Kumarage stated that the increase in vehicular traffic has had an impact on the country’s productivity.
According to statistics as of July this year, vehicle registration hit an all-time high in July registering a staggering 61,953 units, the highest since March which recorded 66,839 registrations, according to JB Securities, a Colombo based equity brokerage.
Accordingly, the total number of vehicle registration till July this year was recorded as 372,658, whereas the figure stood at 194,967 in July last year. The total vehicle registration for 2014 stood at 427,512.