With private passenger car imports set to resume from February 1 despite the lack of clarity over the tax and duty structure, attention has again shifted to “vehicle permits”, a phenomenon perhaps unique to Sri Lanka.
Under earlier administrations, vehicle permits were granted to various categories, including religious dignitaries, Ministers and MPs, members of Provincial Councils and Local Bodies, sports stars, top taxpayers, public servants and expatriate workers (only for electric vehicles). This entailed a 50-100 percent cut in duty and tax rates, depending on the category. This also naturally led to a revenue shortfall for the Government.
The National People’s Power (NPP) Government has categorically stated that duty free or duty concessionary vehicle permits will not be granted to Ministers and MPs, which is a welcome move. Each Minister or MP was entitled to a duty and tax free vehicle permit up to the value of US$ 55,000 under the scheme that prevailed during previous administrations. The MPs just had to pay a laughable port clearance fee of Rs.1,750 to get their hands on a shiny new vehicle.
More often than not, the MPs sold this vehicle permit to wealthy persons at a tidy profit, who then imported a luxury vehicle of their choice. This was perfectly legal, and there was nothing the Sri Lanka Customs or the Inland Revenue Service could do to stop it. Either way, the vehicles imported were gas guzzlers with eight cylinder petrol or diesel engines. On top of the enormous amount of foreign exchange spent on these vehicles, there was a huge fuel bill over the lifetime of the vehicle.
The NPP Government has so far not provided official vehicles to its MPs, with the exception of the visually impaired MP. However, there is no doubt that MPs, especially those who come from remote areas, need a vehicle to attend to their duties. A mechanism should be evolved to enable them to buy a reasonably priced duty-paid vehicle (double cab or similar type) without burdening the taxpayer too much.
This brings us to the issue of vehicle permits for public servants. National Labour Minister and Economic Development Deputy Minister Prof. Anil Jayantha Fernando told Parliament recently that the Government has not taken any policy decision to abolish the concessionary vehicle permits issued to public servants in the executive category.
The Minister said that between 15,000 and 20,000 vehicle permits on concessionary terms have been issued to public servants in the executive category so far. They are still valid, though inactive at present. This is a very large number and as the Minister rightly said, if this opportunity is given at this time, it will be difficult to achieve the desired economic goals.
Accordingly, there is a problem of priority in terms of financial restrictions and not a problem of abolishing the vehicle permits issued to public servants in the executive category per se.
While the ideal method is to abolish all permits and create a level playing field that enables everyone to buy a private vehicle by bringing down the taxes and duties (which can be as much as 300-400 percent of the CIF value of the vehicle), the current financial constraints may not allow this scenario.
But the authorities should think carefully about the next steps to be taken once the economy gets into a better shape. Even now, it can handle car imports worth US$ 1-1.5 billion per year without any adverse effects on forex reserves, but problems might arise if 20,000 car permits are issued straight away. After all, the permits require a substantial revenue sacrifice.
If and when the public servants’ permit scheme resumes, there should be a few options on the table. One is to allow the import of only Battery Electric Vehicles (BEVs) through the permits, with no upper limit on the battery and motor capacity. This will help save fuel in the long run, especially if solar car chargers or DC superchargers are used.
Another option is to grant more concessions for the purchase of locally assembled vehicles and motorcycles through the public servants’ permits. There are around 10 companies that bring in Completely Knocked Down (CKD) kits and assemble the vehicles here with around 50-60 percent local value addition.
This will also minimise the outflow of foreign exchange and also sustain allied local industries such as seat and tyre manufacture. In the meantime, the Government should encourage local vehicle assemblers to move into electric vehicle assembly and full “from the ground up” manufacture of vehicles instead of basing their industry solely on CKD kits.
The third alternative is to limit the engine capacity to around 1.5 litres in the case of Internal Combustion Engine (ICE) vehicles that can be imported using the permits, with a Letter of Credit (LC) limit of US$ 20,000-25,000. This will prevent the importation of gas guzzlers through the public servants’ permits and also ease the fuel bill to some extent, even if 20,000 vehicles are eventually imported. Diesel vehicles should be kept off altogether for environmental reasons.
It is a dream of every public servant (or for that matter, any other citizen) to buy a decent vehicle – at least a motorcycle – for their family and this aspiration will not fade away from our psyche until we have a clean, fast, comfortable and punctual public transport network on the lines of the Light Rail Transit (LRT), which was rather unfortunately cancelled unilaterally by a previous administration.
In the meantime, more Government offices should strive to deploy carpooling methods and buses on all main roads, by which the employees can ride to and from work in comfort. It is a small price to pay for better productivity and a more contented workforce.
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