CMTA acknowledges need to cut vehicle imports

• Says it understands economy unable to sustain significant outflow of foreign exchange
• Acknowledges growth in the quantum of vehicles has resulted in significant rise in city road congestion 
• Looks forward to participating inlong-term policy dialogue with government

The Ceylon Motor Traders Association (CMTA), which represents all major international motor manufacturers in Sri Lanka yesterday acknowledged the need to stem excessive vehicle imports to the country to have a sound economic footing in the long run.

The Association said this with regard to the duty increase on cars below 1000cc by the government, this week.

CMTA said it fully understands the current state of Sri Lanka’s economy, which has been marked by 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 2018 vs. the same period for 2017, is a contributory factor towards this,” a CMTA statement said.    “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 statement added. 

CMTA applauded the governments’ policies to encourage the import of hybrid and electric motor vehicles, such as the Carbon Tax introduced in the budget of 2018, and pointed out that this strategy will in the long run contribute to 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 budget 2018 had a favourable differential for vehicles under 1000cc 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 percent of all motor vehicle registrations, for that year, were accounted for by vehicles under 1000cc. 

Subsequent to the tariff revisions proposed in the budget 2018, small cars accounted for approximately 86 percent 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, especially within the cities. 

“Taking the above factors into account, we understand the government’s policy decision taken on August 1, 2018 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 adhoc excise duty changes, which leads to the ‘stop-go’ nature of new vehicle imports, that leads to uncertainty and causes a strain on both the consumers and firms in the industry,” CMTA said.   

The Association also said it looked forward to participating in a long-term policy dialogue with the government, so 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. 

CB defends import duty hike of vehicles below 1000cc

The Central Bank of Sri Lanka (CBSL) yesterday defended the recent import duty hike of vehicles below 1000cc stating that vehicle imports accounted 50 percent deterioration of Sri Lanka’s trade balance in the first five months of the year, which was mainly driven by a large increase in importation of vehicles below 1000cc.
CBSL pointed out that large portion of vehicle import expenditure has gone into importation of vehicles below 1000cc. According to CBSL officials, the import expenditure for petrol cars below 1000 cc has increased by an alarming rate of 650 percent YoY to US$195 million during the January- May period this year compared to US$26 million recorded during the same period of last year. 

The import cost for petrol vehicles above 3000 cc has increased by 238.5 percent YoY to US$8.8 million in the period while the import costs for diesel vehicles above 3000 cc has decreased by 54.09 percent YoY to US$2.8 million in the same period.  CBSL Governor Indrajith Coomaraswamy said that CBSL decided to use fiscal policy to target particular consumption-driven import segments to tackle the deterioration of the country’s trade balance, rather than relying on monetary policy instruments, which would have impacted all imports, further suppressing the economic growth which is already performing below its 
true potential. 

“There is no need to suppress the overall imports, You need imports to feed growth as well in terms of intermediary and capital goods, hence rather than suppressing the all imports through an interest rate adjustment, if seems better to use taxation policy to target them. We hope that money gets diverted to more productive activities. 

If we had increased the interest rates to tackle the deterioration in the trade balance, that would have suppressed the growth even further,” he elaborated.