The Sri Lankan authorities late announced several alterations to the import revenue enhancement government with consequence from 01st June 2010. These include the decrease in the figure of duty sets, decrease in import responsibilities, remotion of the 15 % surcharge on import responsibility and remotion of revenue enhancements such as the VAT and Cess on some of the points[ 1 ].

Through the above decrease, the authorities slashed vehicle import levies by around 50 % with the remotion of two out of nine revenue enhancements and levies imposed on imported motor vehicles ( i.e. 15 % surcharge on usage responsibility and the 10 % Cess )[ 2 ]anticipating to ease more imports and to develop the conveyance sector in the state. Harmonizing to the import revenue enhancement Act on vehicles, it encourages the importing of used vehicles ( up to 3 A? old ages old )[ 3 ]. The authorities expected to assist raise auto import Numberss to the state as autos are taxed on mean 300 %[ 4 ]upon import which will assist to hike vehicle imports significantly.

Further the Government expected to go through down the benefit to the populace, which will in bend earn more gross to the Government by manner of revenue enhancements, as more volume of vehicles will be imported. The Government has expected a win-win state of affairs with this. As per the inclination in Sri Lanka, bulk hoped that they will be able to purchase a Nipponese manufactured vehicle for a decreased sum and this decrease will impact on the 2nd manus vehicle market every bit good, which will be helpful particularly for the in-between income degree individuals excessively.

Chapter 2

Methodology

Purpose

The purpose of this paper is to place the impacts of the import revenue enhancement decrease introduced late by the Sri Lankan authorities.

PROBLEM STATEMENT

5. Even though the Sri Lankan authorities has reduced the import responsibilities on motor vehicles anticipating a lessening in vehicle monetary values, it has been observed that this benefit has non gone through the vehicle monetary values of bulk demands. With this revenue enhancement decrease bulk expected a large enlargement at local vehicle market every bit good as a monetary value lessening on 2nd manus vehicle market. However the bulk, in-between income degree people have failed to carry through at that place desire to purchase a Nipponese manufactured vehicle but have to be satisfied with a vehicle like “ Maruti ” or “ Alto ” which are in a mean monetary value scope. Hence, the quandary of this nature ( though the revenue enhancement lessening, the vehicle monetary values are non changed ) is a affair needs to be investigated.

Hypothesis

Even though the Sri Lankan authorities removed two levies which was imposed on imported motor vehicles, the bulk of the population in Sri Lanka did non acquire the benefits expected by the authorities through the revenue enhancement decrease.

Scope OF THE STUDY

The range of this research is to garner the positions and thoughts of public sing the revenue enhancement decrease imposed by the Sri Lankan authorities.

Aim

5. General Objective. To look into whether, the bulk of Sri Lankans acquire the benefit given by the Sri Lankan Government by cut downing vehicle import revenue enhancement.

6. Specific Objectives. The specific aims of the research are as follows ;

To place how the revenue enhancement lessening effected on vehicles importing to Sri Lanka.

To place the troubles faced by the bulk of Sri Lankans when buying a vehicle harmonizing to their pick. ( Brand New/ Second Hand/ Unregistered ) .

To place the impact of revenue enhancement lessening on the Sri Lankan 2nd manus vehicle market.

To place the impact of revenue enhancement lessening on the vehicles that piecing in Sri Lanka.

To place the impact of revenue enhancement lessening on the Sri Lankan economic system.

METHOD OF DATA COLLECTION

8. This survey was carried out based on a study. Further, a study was carried out to look into whether any secondary informations are available in this issue by mentioning literature. It was intended to garner information as follows ;

9. Primary Source. Primary beginning of aggregation of information was done through interviews with cardinal persons such as the Gross saless Manager of Microaˆ¦aˆ¦aˆ¦ , Owner of the Ishara Traders as they are the experts who are good experienced in the industry and questionnaires Q-1 ( Annex “ A ” ) and Q-2 ( Annex “ B ” ) were distributed among the individuals who purchased a vehicle during the last 4 months and auto sale proprietors. Questionnaire Q-3 ( Annex “ C ” ) was distributed among the individuals with several income degrees who are willing to buy a vehicle.

10. Secondary Source. Secondary beginning of aggregation of information was done through Sri Lanka Customs, Central Bank Annual Report 2009, paper articles, web articles and relevant databases.

Sampling

10. Samples were been selected utilizing random trying method as follows.

a. Sample-I. Wholly 20 respondents who purchased a vehicle during the last 4 months consist of upper category and in-between category.

B. Sample -II. Wholly 10 respondents, auto sale proprietors, consist of 2nd manus auto sale proprietors and trade name new/reconditioned imported auto gross revenues proprietors.

c. Sample -III. Wholly 20 respondents with several income degrees who are willing to buy a vehicle.

TECHNIQUES OF DATA ANALYSIS

11. The information obtained through the interviews, questionnaire and through literature was subjected to qualitative analysis.

Restriction

12. The clip available to carry on this research will be merely 3 months. The length of the paper will be limited to 5000 words, and it will non be possible to roll up informations from forces from assorted countries in Sri Lanka. Hence, research will be accomplished through the informations obtained from the forces of Colombo territory.

THE STRUCTURE OF THE PAPER

16. This research paper is structured as follows ;

a. Chapter I This is the introductory portion of the research paper.

B. Chapter II This Chapter covers the Methodology.

c. CHAPTER III This Chapter consist of the background of the responsibility decrease introduced by the Sri Lankan authorities on imported motor vehicles and the scheduled manner of adapt the new responsibility lessening and the expected alterations to the vehicle market every bit good to the Sri Lankan economic system.

d. Chapter IV This Chapter will cover the result of the responsibility lessening on motor vehiclesaˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦..

e. CHAPTER V This Chapter will cover the informations which collected through questionnaire and analyzes them consequently

f. CHAPTER VI Conclusion.

Chapter 3

Background

THE PROPOSAL OF DUTY DECREASE ON IMPORTED VEHICLES

15. The Sri Lankan authorities late removed two import levies out of nine levies imposed on imported motor vehicles and the nine set import revenue enhancement construction[ 5 ]on cars were included ;

Six fixed revenue enhancements

a. Port and Airport Development Levy ( PAL ) of 5 % ,

B. Surcharge of 15 % ,

c. Nation Building Tax ( NBT ) of 3 % ,

d. Social Responsibility Levy ( SRL ) of 1.5 % ,

e. Road and Infrastructure Development Levy ( RIDL ) of 2.5 % ,

f. Value Added Tax ( VAT ) of 20 %

Three ‘varying ‘ revenue enhancements

a. Customss Import Duty ( CID ) ,

b. Cess

c. Excise Duty

From the revenue enhancement decrease the authorities removed the 15 % surcharge on Customs Duty and 10 % CESS on motor vehicle imports. This decrease narrowed the scope of revenue enhancements from 90 % to 280 % of the Cost, Insurance and Freight ( CIF value ) . Before the decrease, the revenue enhancements and levies added 150 % to 500 % to the cost of an imported motor vehicle. At that clip the import responsibility and levies on a midsized household auto was about 300 % of the CIF value.

16. The figure of the trade name new vehicles registered in 2008 was 25,325 and in 2009 were 7,437 which was a 70.63 % monolithic bead. Government revenue enhancement gross, in contrast to Rupees.17.4 billion earned in 2007, dropped to Rupees 11.06 billion in 2008 and Rupees 3.25 billion in 2009[ 6 ]. With this continues bead in gross, the Sri Lankan authorities imposed an import responsibility decrease anticipating that the motor vehicle gross revenues which had dried up to pick up sharply over the 2nd half of 2010 hiking authorities gross by widening the trade shortage through an addition in vehicle imports.

THE SCHEDULED WAY OF ADAPT THE NEW DUTY DECREASE

Table 1: Duty STRUCTURE FOR IMPORTS 2010.

Table 02: Deference between the old and new revenue enhancement construction on import of vehicles[ 7 ].

Vehicle Category

Previous Tax %

New Tax %

Change %

Cars – Gasoline

& lt ; 1000cc

187

90

52 %

1000cc & lt ; 1600cc

217

118

46 %

1600cc & lt ; 2000cc

288

150

48 %

2000cc & lt ; 3000cc

299

150

50 %

3000cc & gt ;

299

190

36 %

Cars – Diesel

& lt ; 1600cc

12

178

57 %

1600cc & lt ; 2000cc

510

185

64 %

2000cc & lt ; 2500cc

524

271

48 %

2500cc & gt ;

524

280

47 %

Cars – Electric

Any

144

68

53 %

Auto Trishaws

Gasoline

68

40

41 %

Diesel

47

40

15 %

LG Gas

43

40

7 %

Electric

50

40

20 %

Avant-gardes – Gasoline

13 & lt ; 17 individuals

187

121

35 %

Avant-gardes – Diesel

13 & lt ; 17 individuals

281

152

46 %

Double Cab

Any

366

152

58 %

Luxury Vehicles – Gasoline

10 & lt ; 13 individuals

299

181

39 %

Luxury Vehicles – Diesel

10 & lt ; 13 individuals

524

290

45 %

Motor Cycles

Any

68

68

0 %

EXPECTED CHANGES OF VEHICLE MARKET

The expected alterations through the decrease were to give the benefit to both importers and purchasers as the monetary values of autos will come down drastically and it was expected that more trade name new and reconditioned vehicle will be enter to the market and the monetary values of the 2nd manus vehicle market besides will come down at the same time doing an car world even for less flush households. A lessening in the monetary values of mean ranged vehicles such as Maruti which will be a benefit to the bulk, in-between income individuals. Further hoped that more figure of mean ranged vehicles will come in to the market than the luxury vehicles.

An mean vehicle may come down by Rupees 300,000 and a Sport Utility Vehicles ( SUV ) by about Rupees 3 million. With the monetary value lessening it was expected that the demand for little vehicles would increase. Further it was expected that the diminishing monetary values of vehicles will be a benefit for the travel industry every bit good and will back up the spread outing tourer activity and lifting degree of tourer reachings.

An Indian made Maruti which had attracted excise duties up to 183 % of its value will come down to 90 % . Maruti 800 which was priced around Rs.1.3 million will come down to around Rs.790,000 after the decrease. Maruti Alto 800 which was sold at 1.7 million will come down to around Rs.1.3 million. The trade name new Indian manufactured Suzuki Swift which was priced Rs.3.1 million earlier will come down to around Rs. 2.4 million. The KIA Sorento ( Diesel ) Jeep which was around Rs.14.8 million will come down to around Rs.10 million including VAT. Reconditioned Nissan vehicle which was sold for around Rs.23 million would come down to around Rs.20 million.

Specimens Calculation for a Brand new Yaris under new and old duty ( IN USD )

New

Old

Consignment Monetary value

11000

11000

Insurance and Freight

3000

3000

14000

14000

Duty

( 14000×115 % )

16100

( 14000×217 % )

30380

Agent Handling Fee

2000

2000

Assorted

500

500

32600

46880

Salvaging = 46880 – 32600 = 16280 USD.

The figure of vehicles imported to Sri Lanka has been dropped off continuously during the past few old ages and with the decrease it was expected to widen the trade shortage through an addition in vehicle imports.

EXPECTED EFFECTS TO ECONOMY

The authorities took the determination particularly to gain more gross by manner of import revenue enhancements as more volume of vehicles will be imported and that the authorities every bit good the insurance concern would acquire the benefit from the pickup in new vehicle enrollment.

Peopless will purchase more vehicles and so renting and finance sector will hold more concerns.

Car importers, banking and finance sector every bit good as crude oil and conveyance sectors might hold positive impact.

Banks would acquire the benefit from increased trade finance activity while an expected addition in imports could make moderate volatility on exchange rates.

To command the foreign exchange escape as importing a used vehicle is lower cost and the foreign exchange out flow is less.

To protect the local auto industry.

Chapter 4

THE Result OF THE DUTY DECREASE ON MOTOR VEHICLES

Even though the Sri Lankan authorities expected the above mentioned effects, the manner the responsibility lessening effected on vehicle imports, vehicle market and the Sri Lankan economic system are as follows ;

INTRODUCE THE INCOME LEVELS OF THE SRI LANKAN POPULATIONS

20. Introducing the income degrees of personals and who can buy a vehicle.

To easy understand the income degrees of the Sri Lankan population, the current ( household ) monthly income degrees have been distributed as follows ;

Less than Rs.30,000 ( lower income )

Between Rs.30,000 – Rs. 100,000 ( in-between income )

More than Rs. 100,000 ( high income )

Pie chart

THE WAY IT EFFECTED TO VEHICLE IMPORTS

With the revenue enhancement decrease import of motor vehicle increased as shown in the Table.

Month ( 2010 )

No. of imported vehicle from Japan

No. of imported vehicle from India

No. of imported vehicle from other states

Brand New

Recon.

Brand New

Recon.

Brand New

Recon.

2008 Avg/Mnth

2009 Avg/Mnth

January

February

March

April

May

June

July

August

September

October

Due to the grasp of the Yen, the monetary values of the Nipponese manufactured autos increased than the monetary value what it was before the responsibility decrease. A Nipponese vehicle worth around Yen 1 million two old ages ago which was selling at a Rs. 3.6 million in Sri Lanka so, under the exchange rate of Rs. 0.9 per Hankering. But in the last two old ages as the Hankering has appreciated by about 45 % , the exchange rate has increased to Rs.1.3 per Yen. Hence now a vehicle deserving Yen 1 million is over Rs.3.611 million in Sri Lanka. Hence, the monetary values of the vehicle decreased significantly in Sri Lanka, the monetary values of the Nipponese manufactured vehicle increased by 25 % ( by interview ) .

However, the Yen quandary has non effected the Indian and Chinese vehicle market in the state.

Chart of imported vehicles

Less than 1 Meters

1M – 1.5M

1.5M – 2M

2M – 2.5 Meter

2.5M – 3M

THE WAY IS EFFECTED ON VEHICLE MARKET

The demand for registered and un-registered vehicles has increased well.

Demand for little autos has increased. ( eg. 150 units to over 400 units in two months – Ceylon Motor Trading Association[ 8 ]) .

The auto sale proprietors who had stocks had to sell their stock at a loss after the revenue enhancement decrease.

As the old responsibility construction did non promote the import of diesel-powered double intent vehicle, an ageing fleet of new waves and dual cabs every bit good as a big figure of illicitly assembled landrovers came into the market. But as the new responsibility encouraged the import of second-hand Diesel cabs and new waves from Japan every bit good as South East Asia which farther depressed the monetary values.

THE WAY IT EFFECTED TO LOCAL MANUFACTURED VEHICLES

23. The lone auto manufactured/assembled in Sri Lanka is the ‘Micro ‘ auto. As there is a immense revenue enhancement imposed on this local auto to convey the monetary value about on par with imported autos which discouraged many people from purchasing this locally manufactured auto. There is no any revenue enhancement on this local merchandise to give them more grant to better the production. Hence, the revenue enhancement decrease has discouraged and severely affected on the local manufactured autos.

THE WAY IT EFFECTED TO THE SRI LANKAN ECONOMY

Renting concerns face some short term emphasis in its assts as the value of collateral on chartered vehicles bead. However, an addition in new concern volumes would more than compensate for this in the average term. Vehicle renting volumes rose aggressively and came money to economic system.

When importing used vehicles, it incurring more fixs taking to the increased import of trim parts. Hence this caused to the escape of money to outside the state to buy vehicles every bit good as to the spare parts, care etc after buying a vehicle.

Huge outgo on developing roads and main roads. Construction and care of roads ( any route development programs ) . Presently it takes 30 proceedingss to go 5 kilometers in haste hours in the Colombo country due to traffic. The present route installations are non equal to suit the increasing figure.

In the first case the insurance sector got affected in the short-run by lower motor premiums on insurance reclamations as a consequence of the diminution in motor vehicle monetary values. But ulterior insurance concern got the benefit from the pickup in new vehicle enrollment.

Chapter 5

HOW DUTY DECREASE EFFECTED TO UPPER CLASS PERSONNEL

The revenue enhancement decrease has effected positively on upper category forces with a higher income degree.

How the vehicle monetary values of luxury vehicles have decreased

HOW DUTY DECREASE EFFECTED TO MIDDLE CLASS PERSONNEL

28.

HOW DUTY DECREASE EFFECTED TO LOWER CLASS PERSONNEL

As mentioned in the Chapter 4, ___ % of the people has non wholly being effected by this revenue enhancement decrease as they do non hold sufficient fiscal degree to buy a vehicle.

Data ANALYSIS THROUGH THE QUESTIONNAIRES

23. All informations collected as primary, secondary, single footing, will be analyzed to turn out or confute the hypothesis.

Chapter 6

FINDINGS, CONCLUSION AND RECOMMENDATIONS

The revenue enhancement decrease has effected in a different manner to the citizens and it effected chiefly on their income degrees. Even though it is a benefit to the purchaser who purchased a vehicle, the affects has been spread through out everyone in the state in the long tally. The decrease has affected the local vehicle assembly programs every bit good as the local industries that will come up to the market in the hereafter. Further the fiscal escape which goes out the state by importing more figure of vehicle are the monies that have to utilize for the development of the state and it affect the economic system in the hereafter. Affect the environment as more vehicle be used and the escape of money due to high fuel ingestion.

However the revenue enhancement decrease will increase the figure of importing vehicles with new engineerings will assist to better our degree of conveyance in the state and as the care, serving will be done locally and it will be a benefit to the lower category and in-between category forces who are engaged in the field.

as the new engineerings will be introduced, the fuel ingestion will be less per vehicle.

environment friendly than the old vehicles.

Even though the authorities introduced a steep revenue enhancement cut on vehicle imports which has injected life into the about comatose auto trade, some traders pig-headedly hold the high monetary values trusting that revenue enhancement government will non last excessively long. Hence the authorities should give the populace a dislocation of the monetary values with some illustrations explicating the system decently to avoid alleged unjust pattern rises of the values of the vehicles every bit good as the state of affairss like double rating policies.

More environment pollution as the used vehicles are less fuel efficient. So than importing more pollution the authorities should re-think and re-evaluate the policy promoting importing of older vehicles to the state. The authorities should promote the importing of trade name new, economical low terminal autos and deter the import of luxury autos which will do good quality vehicles to be on the new roads and this will besides maintain the environment better from pollution by old hapless quality vehicles. The over ingestion of fuel would do pollution every bit good as the state depending on import more fuel in future. If fuel rate addition it will do a jobs besides.

Must promote the importing of trade name new vehicles every bit much as possible and promote exiles to convey in a trade name new vehicle for their private usage as it do non hold much of an impact on the foreign exchange escape.

As there is non good public transit system in Sri Lanka, the authorities should promote everyone to purchase the locally manufactured autos by doing them cheaper than the imported opposite numbers.

Develop a good public transit system such as electric train system, subway systems as they are more low-cost, causes less pollution per traveler, saves batch of clip for all and are more convenient.