Motor traders uncertain of industry’s viability amid proposed tax hike

• Vehicle imports remain under import suspension even after 31 months 
• CMTA says industry lost 10,000 jobs during last two years
• Says industry seeing mass exodus as skilled employees leaving the country
• Urges govt. to widen tax net and cut expenditure instead of hiking taxes 

The Ceylon Motor Traders Association (CMTA) yesterday expressed serious concern over the viability of Sri Lanka’s motor industry in the face of the latest increases in taxes proposed by the government. 

The government imposed a complete import suspension on all types of vehicles in March 2020 citing that it would be for a period of 06 months. But, even after 31 months, the core products of the industry remain still suspended and the government has not provided any type of relief to the industry to-date. 

Further, due to limitations in establishing LCs over the last few months, the import of genuine spare parts also reduced, which directly impacted the after-sales business, the key revenue line left for motor companies.

Prior to the import ban, the CMTA membership employed over 30,000 individuals while over 6,300 island-wide SMEs were managed as dealers, which fuelled the rural economy with over Rs. 2 billion as dealer incentives. 

CMTA members paid over Rs.6 billion for outsourced services such as security, cleaning, logistics, storage etc, and facilitated vehicle finances of over Rs.124 billion, which sustained many jobs in several trades including leasing and insurance. 

Excise duty contribution from the motor trade was Rs.130 billion in 2019, which alone accounted for 6.8 percent of government revenue.   “Due to the import suspension, the motor trade has been crippled and has lost over 10,000 jobs during last two years. Further, over 1,500 dealers, who were SMEs based island-wide, have closed down and has a direct impact on the rural economy,” CMTA Chairman Charaka Perera said.

“Stemming from the decline in business, the employee income has drastically reduced due to the lack of sales commissions and performance incentives while most of the CMTA member companies have not been able to provide reasonable increments or bonuses to compensate the increase in cost of living. In such a backdrop, the increase in inflation to over 64 percent has made it unsustainable to retain staff. 

Employees are moving out of the industry as well as out of the country, as they do not see a future within the motor industry. They can use the skills and experience gained to get sales and technical jobs in other countries. This is creating a severe talent drain for CMTA member companies, and their operations are being hampered as a result,” he stressed. 

While the motor industry is facing such hardships, the impact of the announcement of increased taxes for corporates and individuals would be unbearable to the motor trade as well as many other trades, CMTA pointed out.

“Such a move would ensure a mass exodus of trained experienced employees, on whom the companies have heavily invested and who are not easily replaceable,” CMTA cautioned. 

As such, the CMTA is requesting the government to focus on multiple solutions such as reduction of government expenditure, increasing efficiency of SOEs, increasing the taxpayer base and strengthening the tax collection systems, which would negate the requirement to drastically increase taxes for already tax paying corporates and salaried employees.