Nov 24, 2017

2018 budget proposals promote luxury cars

The 2018 budget has paved the way for a balanced taxation mechanism for vehicle imports to a certain extent some of these areas with a long term perspective in mind such as the introduction of the new safety standards and emission regulations.

However, unexpectedly for the taxation of the vehicles the new budget had opened avenues for super luxury vehicles to flow in (which has high CIF value and high end options) at the same tax level as a mid-segment model, with the ad-valorem rate taken out.

For some reason it seems that the regulators have missed the fact that a high cubic capacity engine will not necessarily represent high end vehicle but the determining factor is the output of an engine, motor traders said.

The government had failed to understand the modern day auto mobile world and new trends in the trade worldwide.

For example the comparison of a vehicle (apart from its options) is made taking in to consideration the power factor (Output) and the cost of producing it and not the cubic capacity of an engine.

It is not fair to charge the same duty for a 2,000cc Korean made vehicle produced and purchased for 20,000 US$ and a European manufactured one purchased at 35,000 US$.

In a real world scenario a European made model X with a CIF value of Rs.5 million (Taxed at 130%) will pay the same duty of a Japanese made model X with a CIF value of Rs.2.0 million (Taxed at 300%) thus depriving the government of a duty income of around Rs.7-10 million per vehicle.

Further the additional outflow of foreign exchange on an expensive vehicle does not bring in sufficient proportion of inflow to the Government Revenue. Basically, the new policy whilst trying to close the front door had opened the rear door for outflow.

However, under the current tax structure the market had created a non-level playing field allowing super luxury vehicles to flow in without understanding the true implications of such a policy. This policy in one way is depriving the duty payable to the government for high CIF vehicles. Over a period of one year this could record billions of rupees in tax loss, motor traders pointed out.

Therefore, for a fair and justifiable system of duty calculations, motor traders suggest that the system has to be also linked to the engine output (BHP) so that the higher end super luxury vehicles will pay a higher duty closing tax revenue leakage to the government as well as creating a level playing field and ensuring the survival of all players in the market.