Sharp increase in vehicle taxes; Govt. expects to rake in Rs.48bn in revenue

Sri Lanka raised duties on vehicles across the board and imposed a heavy luxury tax on certain models as the government used increasing number of motorcars on congested roads to shore up its revenues by a mammoth Rs.48 billion.

The Budget 2019 yesterday proposed to increase excise duties on passenger motor vehicles—from small cars with less than 1,000cc (cubic centimeters) engine capacity to vehicles with larger engines up to 2, 000cc. 

For instance, a petrol vehicle with engine capacity of less than 1,000cc will be subject to a tax of Rs.2,000 per cubic centimeter  and a vehicles with engine capacity of 2,000cc will have a duty of Rs.6,350 per cubic centimeter. 

This means a smaller car with the engine capacity of 800cc will have total duty payable of Rs.1.6 million. 

Although a precise increase in the market price of a vehicle cannot be ascertained, the selling price of popular Suzuki Wagon R model could go up by approximately by Rs.250, 000. The excise duties on hybrid and electric vehicles were also revised to reflect the energy efficiency benefits. 

Even though the revision of excise duties on vehicles across the board could be considered as a move taken in the direction of curbing excessive use of vehicles and as a measure to beef up State coffers, this may have shattered the hopes of many who aspired owning a vehicle of their own. 

Meanwhile, the government slashed taxes on electric vehicles and buddy vans going by its principle of applying duties based on the energy efficiency of the vehicle type. 

The government said excise duty on buddy trucks with cargo carrying capacity less than 2,000 kilo grams will be reduced, along with excise duties on funeral cars.

 Meanwhile, the government also imposed a luxury tax on motor vehicles on Cost, Insurance and Freight (CIF) value of the vehicle or the manufacturer’s price in excess of the luxury tax-free threshold determined by the government, based on the type of vehicle. 

For instance a diesel vehicle has a luxury tax-free threshold of Rs.3.5 million and any excess is subject to a 120 percent luxury tax. 

The new tax will come into effect from today, March 6. The government expects to collect a total of Rs.48 billion from the revision of excise duty and the luxury tax, a quite a significant amount considering the size of other revenues sources.

200% cash margin removed 

The Budget 2019 proposed to remove the 200 percent cash margin requirement imposed on vehicle imports. 

This fundamentally contradicts the duty revision if the intention of the government was to control the vehicles coming into the country, as the removal of cash margin releases working capital for the dealers to import more. 

However, at the outset, it appears that the government may be allowing more vehicles by way of easing credit restrictions and getting the buyer to pay more taxes at the point of purchasing.

Carbon tax on commercial vehicles

The government also stipulated in the Budget 2019 how it intends to collect the controversial carbon tax on commercial vehicles. 

The maximum payable of the carbon tax has been designed in such a manner where the owner of vehicle will pay a higher tax based on the age of the vehicle, the fuel type and the engine capacity. 
At the lower end, a commercial hybrid vehicle less than 5 years will pay 25 cents per cubic meter or Rs.3, 500, whichever is lower. 

A pure fuel burning vehicle with the same age will pay a higher tax of 50 cents per cubic meter or Rs. 3,500, whichever is lower. 

Similarly, a commercial hybrid vehicle between 5 to 10 years of age should pay 50 cents per cubic meter or Rs.5, 500, whichever is lower. 

If the vehicle runs on fossil fuel, the tax is Rs.1.00 per cubic meter or Rs.5, 500, whichever is lower. 

Meanwhile, a hybrid vehicle over 10 years old will have to pay Rs.1.00 per cubic meter or Rs.7, 500, whichever is lower.

A vehicle with a combustion engine will have to pay Rs.1.50 per cubic meter or Rs.7, 500, whichever is lower.