Vehicle imports have set a new record in terms of revenue collection for the treasury.
As per media reports, customs have recorded LKR 229 billion in tax collections in 2015 surpassing the previous record set in 2011 of approximately LKR 134 billion. The amount collected in 2015 is perhaps double that collected in 2014. The treasury is projecting to collect LKR 280 billion in 2016 which is a 22% increase over 2015 and a 140% increase over 2014 – this is a near impossibility, according to a report compiled by Murtaza Jafferjee, a financial analyst among others.
One of his firms JB Securities has said, all indications are that the realistic estimate in 2016 will be lower.
"I am estimating it to be around LKR 180 billion (potential downside error) – 35% lower that the treasury estimate for 2016 and 20% lower than 2015. My reasons are as follows: Credit extension fuelled the previous boom – LTVs reaching 90% and low interest rates. Both of these factors have been recently reversed, LTV cap is back at 70% - this will reduce demand from those who don't have the minimum 30% upfront collateral and interest rates are rapidly increasing. The categories that are highly dependent on credit – 3-wheelers, mini trucks and small cars will see sizeable contractions.
The currency has depreciated by 8% relative to the US dollar, it has declined further to the Euro and Yen due to their recent strength. This has pushed up prices of not only cars but ALL other items sapping purchasing power.Hybrid vehicles have seen a significant increase in prices, in most categories a 30-35% increase. Demand is NOT inelastic; some will trade down for a cheaper vehicle or hold back hoping the treasury will revise the tariff rates down.
Market demand is also saturated for some of the heightened demand witnessed in 2015 were from potential buyers expediting their purchases anticipating an increase.Permit transfers have been restricted, the limit has been reduced from USD 30,000 to USD 25,000. The finance minister has justified this change on the basis of it being a tax expense. Although I do agree that permits should be done away with due to its distortionary impact on the playing field it made premium cars much more affordable – but it reduced the duties from a ridiculous 172% to a more realistic 126.5% (USD 30,000 permit). Many of the BMW 5-series that were sold for around LKR 10-11 million were on this basis, they will cost an additional LKR 2 million. Either these buyers will trade down to a less premium model or delay their decision or buy another durable with less incidence of taxes, e.g. duty free speed boats," said Jafferjee. (IG)
As per media reports, customs have recorded LKR 229 billion in tax collections in 2015 surpassing the previous record set in 2011 of approximately LKR 134 billion. The amount collected in 2015 is perhaps double that collected in 2014. The treasury is projecting to collect LKR 280 billion in 2016 which is a 22% increase over 2015 and a 140% increase over 2014 – this is a near impossibility, according to a report compiled by Murtaza Jafferjee, a financial analyst among others.
One of his firms JB Securities has said, all indications are that the realistic estimate in 2016 will be lower.
"I am estimating it to be around LKR 180 billion (potential downside error) – 35% lower that the treasury estimate for 2016 and 20% lower than 2015. My reasons are as follows: Credit extension fuelled the previous boom – LTVs reaching 90% and low interest rates. Both of these factors have been recently reversed, LTV cap is back at 70% - this will reduce demand from those who don't have the minimum 30% upfront collateral and interest rates are rapidly increasing. The categories that are highly dependent on credit – 3-wheelers, mini trucks and small cars will see sizeable contractions.
The currency has depreciated by 8% relative to the US dollar, it has declined further to the Euro and Yen due to their recent strength. This has pushed up prices of not only cars but ALL other items sapping purchasing power.Hybrid vehicles have seen a significant increase in prices, in most categories a 30-35% increase. Demand is NOT inelastic; some will trade down for a cheaper vehicle or hold back hoping the treasury will revise the tariff rates down.
Market demand is also saturated for some of the heightened demand witnessed in 2015 were from potential buyers expediting their purchases anticipating an increase.Permit transfers have been restricted, the limit has been reduced from USD 30,000 to USD 25,000. The finance minister has justified this change on the basis of it being a tax expense. Although I do agree that permits should be done away with due to its distortionary impact on the playing field it made premium cars much more affordable – but it reduced the duties from a ridiculous 172% to a more realistic 126.5% (USD 30,000 permit). Many of the BMW 5-series that were sold for around LKR 10-11 million were on this basis, they will cost an additional LKR 2 million. Either these buyers will trade down to a less premium model or delay their decision or buy another durable with less incidence of taxes, e.g. duty free speed boats," said Jafferjee. (IG)
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