The Ceylon Motor Traders’ Association (CMTA) made a statement claiming that the newly imposed VAT on used vehicles, 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.
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% 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% 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.
The Senior Vice Chairman of CMTA Mr. 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 04 year long, vehicle import suspension. Take 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. Further, each time a used vehicle goes through the buying and selling cycle, the price keeps escalating due to the VAT. This is just a glimpse of how the VAT will adversely affect used vehicle customers going forward.”
The Chairman of CMTA Mr. Charaka Perera commented on the alternate proposal by CMTA. “We have proposed the government to 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. If this issue is not addressed, there could be further job losses in the industry, which had already lost over 15,000 jobs from the imports suspension.”
The membership of the Ceylon Motor Traders’ Association consists of the local authorized agents of the global vehicle manufacturers and the association has been working towards the sustainable development of the automobile industry since its inception in 1919.