Daily News Editorial

Posers on vehicle duties

10th October 2015

A major controversy has arisen over the Government's recent decision to increase duties and taxes on a number of vehicles including some of the most popular hybrid models. There are pros and cons of this move, which has seen the prices of these vehicles go up between Rs.600,000 to Rs.1.2 million, not counting the effects of currency fluctuations.

With more than 70,000 vehicles of all types entering the roads every month, our road network is at breaking point especially in the Western Province where most of the vehicles are registered. From the authorities' point of view, a measure of control over the vehicle population is desirable. One also has to take into consideration the revenue imperatives of the Government, because these taxes are used for many aspects of development. Another possible benefit is that the new taxes will encourage the import of mostly brand new vehicles, because the consumer price difference between reconditioned and new cars will be minimal. In other words, it will no longer be profitable to import older cars well past their prime.

But at the same time, one has to respect the right of all citizens to purchase a motor vehicle in a democracy. When income levels go up, people naturally want to climb up the social ladder and a vehicle is one of those goals. The other reason that everyone aspires to buy a vehicle is the notoriously unreliable nature of the public transport system in this country. It is a nightmare to travel by bus or train in the morning/evening rush hour and most people opt to buy at least a motorcycle to get to their workplaces and run other errands on time.

Rather than imposing ad-hoc taxes, the time has come to take stock of the big picture of vehicle imports and usage in this country. Imposing more taxes on vehicles, especially hybrids, could be counter-productive in the long run. After all, duty concessions were granted for these vehicles because they could run more kilometres per litre of fuel and thus save foreign exchange spent on fuel imports. With the proposed duty increase, the authorities run the risk of driving people away from hybrids, especially in instances where an equivalent petrol-only model is available. The Mitsubishi Outlander is a perfect example - under the new duty system, the plug-in hybrid version will cost at least Rs.3 million more than the petrol version. This almost amounts to punishing the customer for opting for a more environmentally-friendly, less fuel consuming vehicle. One would rather pump fuel with that Rs.3 million - which ultimately defeats the whole purpose of popularizing hybrids. The authorities should therefore re-think the duties and taxes on hybrids.

Ad-hoc tax changes have another negative effect - when the taxes are lowered, private car importers get into a frenzy and import thousands of cars at once. Each so-called 'car-sale' has hundreds of cars awaiting customers and despite having so many cars in stock, they import even more units, which results in a foreign exchange crunch. The authorities should formulate a mechanism to ensure that excess numbers of cars are not imported. There should be an application and inspection procedure which ensures that an importer cannot import new units of a particular model if he already has unsold units of the same model. The 'car sale' model is not economically sustainable in the long run as it is basically an uncontrollable juggernaut at present. On the other hand, sole agents bring down cars strictly on the orders they receive, apart from a few display and demonstrator models. That is a more economically viable system.

In the end, it is much better to have a uniform tax policy for vehicles for at least five years at one stretch, which generally tempers the demand and regulates the influx of vehicles. In the days when taxes and duties on all petrol vehicles amounted to a blanket 100 percent on all engine sizes, there was hardly a surge in imports unlike now when importers try to "make hay while the sun shines".

To give praise where it is due, the authorities rightly deserve plaudits for lowering the duty on all-electric cars to just 5 percent, which was a move in the right direction. We hope this will continue without an interruption. Again, this good move will be negated if all these cars draw electricity from the National Grid which is fed mostly by fossil fuels. The Government must grant duty free concessions for rapid DC chargers and solar charging stations, which will lessen the dependence on fossil duel generated mains electricity.

The authorities were also right to lower duties on 1000 CC or less cars through the last budget, but they are still way too high at around 155 percent. These cars' fuel efficiency levels are almost on par with those of hybrids. If these cars are made more affordable, there is every possibility of three wheelers - those totally unsafe contraptions - going off the road for good. That in itself will be a major achievement of a more enlightened vehicle import policy which is sorely needed at this juncture.