The Government should charge VAT on the profit margin of the vehicle, which will not result in a major price increase while enabling legitimate companies to continue with their business and the Government to earn revenue from VAT of the used vehicle sales, Ceylon Motor Traders’ Association (CMTA) said in a statement.
“This has supported the creation of a black market in the industry, while increasing the market prices of used vehicles which is hurting the common man of the country.” Chairman CTMA Charaka Perera said.
“The recent implementation of VAT has stirred concerns in the motor trade as legitimate companies now face a significant hurdle. When these companies sell vehicles, the prices surge by an additional 18 percent due to the newly imposed VAT.”
On the other hand, unethical companies and individuals, often dealing in cash transactions, can operate without the burden of this additional tax, offering them an 18 percent substantial competitive advantage. This situation poses a serious threat to legitimate companies, rendering them inoperable against black-market competitors.
As a result, the used vehicle sales will move to such black market traders and the Government will not be able to achieve the expected income from VAT on used vehicles. The reason is that such black market traders do not divulge the actual transactions or profitability to authorities and therefore do not pay any income taxes or any other direct taxes.
In addition to the above, since the legitimate companies will have to exit the used vehicle business completely, the Government will lose even the income tax which it was getting from such companies previously.
Undue advantage
The Senior Vice Chairman of CMTA Virann De Zoysa states that: “The black market traders, taking undue advantage of the situation, have already increased prices of vehicles and two wheelers, which is hurting the common man of the country, who were battered by the exorbitantly high used vehicle prices resulting from the now four years long, vehicle import suspension.”
“For instance, the Suzuki Wagon R, one of the country’s most popular vehicles. A legitimate company would now have to charge an additional Rs. 1 million due to the VAT, making it significantly harder for the average consumer to afford. Even a commonly purchased two-wheeler like the Honda Dio Scooter will cost an additional Rs. 100,000 at a legitimate company.
