New taxation on Vehicles

http://www.lbo.lk/fullstory.php?nid=680908959

Sri Lanka raises automobile import taxes
Mar 31, 2012 (LBO)- Sri Lanka has slapped new taxes of as much as 100 percent of import value on some imported cars, but kept taxes on hybrid cars lower, in a move which can reduce state revenues from automobiles this year.
Sri Lanka's finance ministry in a notice on its website said total taxes on imported hybrid cars has been raised to between 60 to 125 percent from the current 51 to 100 percent based on engine size, mostly from excise levies.

Taxes on petrol-driven cars have been raised from the current 120 to 189 percent of value to 189 to 275 percent, depending on engine size.

Taxes on diesel cars have been raised from the current 180 to 191 percent to 250 to 350 percent.

Taxes on petrol vans have been raised from the current 103 to 172 percent range to 125 to 200 percent.

Taxes on diesel vans have been raised from the current 112 to 291 percent to 125 to 350 percent.

Taxes on petrol-driven three wheeler vehicles have been raised from 51 percent to 100 percent, taxes on diesel three wheelers from 61 percent to 100 percent and electric three wheelers from 27 percent to 50 percent.

Taxes on double cab pick-up trucks have been raised from between a range of 93 to 110 percent to 150 percent.

Motor cycles taxes have been raised from 61 percent to 100 percent.

Sri Lanka's ordinary citizens pay very high taxes on cars, while state workers get tax-slashed cars. The countries elected ruler class gets completely tax free cars.

The finance minister said a surge in imports of cars had created congestion in roads and a higher demand for fuel.

Sri Lanka ran into a balance of payments crisis in mid-2012 due to low interest rates and high central bank accommodated credit growth as well as credit taken to manipulate oil prices as well as general deficit spending by rulers.

Sri Lanka has been plagues with balance of payments crisis from soon after independence from British rule after a money printing central bank with a so-called soft peg was created, abolishing a currency board or hard peg that kept the exchange rate stable and trade fee.

In Sri Lanka motor cars and oil imports are "usual suspects" for foreign exchange shortages. Taxes

LBO's economics columnist fuss-budget who predicted the current balance of payments crisis last year said authorities had a history of imposing controls on citizens instead of correcting their own policy mistakes.

"In Sri Lanka it may include curbs on car imports by raising taxes on cars or letter of credit margins on cars and other imports," fuss-budget said at the time in the column BOP 101 -Sri Lanka can avoid currency trouble with consistent policy.

Taxes on alcohol and cigarettes have also been raised.

What would be the future of Motor sector stocks with new taxation, Will they come down to pre 2010 prices ? or Still would there be some demand due to increasing income?

seen in the paper and sad to hear for the middle income workers...who are saving money to buy a small car. The higher engine size cars which normally for big people taxes are not increase much...

WildBear wrote:What would be the future of Motor sector stocks with new taxation, Will they come down to pre 2010 prices ? or Still would there be some demand due to increasing income?

Motor sector is already trading at very low PEs reflecting these issues I presume.

Ex : DIMO , UML trading below PE of 5. How much should they drop further depends on panic sellers. These companies will most probably remain in profit, but yes current earning will be reduced .

Note this tax mainly affects Passenger sector vehicles.

Let take DIMO as it mostly services a sector which is not passenger which this tax targets most. Even if DIMO cuts it current earnings by 60-70% and has annual EPS OF 100 it is still trading at PE of 9-10. But looking at the sector and it portfolio of commuter and commercial ( mainly TATA and mahindra ) which still has tax benefits and then luxury ( Benz) and also other minor diversifications do you think their eps will drop that much ? ( also provided that they can expand their presence and operations)

Funny as ever!

The guy who has ordered a vehicle for 6m in January at $1 = 113/- and lower interest rates now will get his vehicle delivered at a higher price plus the exchange rate difference (10-15% which will also get taxed) and plus higher interest rate to pay for finance! i wont be surprised to see his vehicle cost him 60-80% more on delivery! What crazy policy making!

LBO has made a beautiful statement!

LBO's economics columnist fuss-budget who predicted the current balance of payments crisis last year said authorities had a history of imposing controls on citizens instead of correcting their own policy mistakes.

Cheers!

Rapaport wrote:Funny as ever!

The guy who has ordered a vehicle for 6m in January at $1 = 113/- and lower interest rates now will get his vehicle delivered at a higher price plus the exchange rate difference (10-15% which will also get taxed) and plus higher interest rate to pay for finance! i wont be surprised to see his vehicle cost him 60-80% more on delivery! What crazy policy making!

LBO has made a beautiful statement!

LBO's economics columnist fuss-budget who predicted the current balance of payments crisis last year said authorities had a history of imposing controls on citizens instead of correcting their own policy mistakes.

Cheers!

Rappaport, are you sure these tax increases will not be effective on orders made after today itself? Am not sure how it works but should an order made in january at predetermined/negotiated cost will be now inflated by this sudden tax increase as delivery date is after today? Does people lock in their deal at the time of the order or after delivery? There should be some serious ethics here. If not is a crying shame. What if I can afford 6m but not 9m million due now these tax increases? Can I say I do not want the order now if so as it is an unexpected sudden change than budgeted for?

Authorities have made another effort to monitor the balance of payments since currency floating has not given expected outcome. Many expected this new tax revision on motor vehicles. Though it fills up the state coffins, the new tax structure hits hard below the middle class who have been dreaming for a mode of transport.
What will be the next move if expected results are not achieved? Some argue BOP issue apparently will be better after festive season with lesser volume of imports. However, we do not have a strong local supplies chain to meet the demand of materials & equipment for current development phase.
If BOP issue is not lessened in the near future I guess the next target will be the impose of tax on luxury goods.
Experts may enlighten the readers of their views on how this tax revision impact on DIMO,UML,AUTO..etc..

Slstock

The taxes will be applicable to all vehicles which get cleared from tomorrow.

When u reserve a vehicle, there is a clause that rise in price due to exchange rate and taxes to be paid by the customer.

Since the rise is so much i dont think companies will shoulder the burden Lots of cancellations may happen and most will forget their small advance which was paid for the booking. Car companies will be stuck with unsold units and their money will get stuck

I heard some companies are willing to negotiate with customers to offer a good price to complete the deal. A win win situation for both.

Tough times. Previously we had politicians sayin "War War War" and now they are dead silent! Brilliant blunder!

See some funny headlines today:

Crucial IMF meeting on SL loan - http://www.sundaytimes.lk/

After Sri Lanka now India in trouble,UN asks to repeal AFSPA - http://www.sundaytimes.lk/

Hambantota to be free port - http://www.sundaytimes.lk/

Cheers!

Sri lanka is now again on reverse track !

sry guys,maharaja vahana anayana kara awasan..
(

Rapaport wrote:Slstock

The taxes will be applicable to all vehicles which get cleared from tomorrow.

When u reserve a vehicle, there is a clause that rise in price due to exchange rate and taxes to be paid by the customer.

Since the rise is so much i dont think companies will shoulder the burden Lots of cancellations may happen and most will forget their small advance which was paid for the booking. Car companies will be stuck with unsold units and their money will get stuck

I heard some companies are willing to negotiate with customers to offer a good price to complete the deal. A win win situation for both.

Tough times. Previously we had politicians sayin "War War War" and now they are dead silent! Brilliant blunder!

See some funny headlines today:

Crucial IMF meeting on SL loan - http://www.sundaytimes.lk/

After Sri Lanka now India in trouble,UN asks to repeal AFSPA - http://www.sundaytimes.lk/

Hambantota to be free port - http://www.sundaytimes.lk/

Cheers!

Thanks for the update
Yes rapport sometimes I feel these administrator pass too much burden on to middle/low income citizens for blunders and planning issues they make.

I think we should look at Motor company portfolios carefully. Some companies will get more affected than others. Those companies that deal in commuter, agriculture category mainly still has tax benefits and the new taxes for those categories did not go up.

Some companies who have previous stock bought before the currency rise will be ahead in the short term.
Overall though all company profit might see drops from now, some companies will still be on the top of the pack.

Anyway as mentioned before motor sector as a whole is trading with low PE now. So the market was expecting the negativity and issues like this. I see no need to panic and sell. I still see DIMO and UML specially which is trading below PE of 4-5 having capacity to survive evene will profit drops. These companies trade near their NAvs also now.

Rapaport wrote:Slstock

The taxes will be applicable to all vehicles which get cleared from tomorrow.

Cheers!

I thought if your LC was issued prior to the date government increased the tax, then you can clear your vehicle under the previous tax brackets?

However I feel very sad for the people who are trying to buy new vehicles in Sri Lanka. I guess its no longer a luxury item & they have right to buy their own vehicle for a reasonable price.

All my UK work colleagues were so surprised ( didnt believe me initially) to know that people in Sri Lanka pay this much for vehicle. They coulnt understand how come vehicles are so expensive in a 3rd world country like in Sri Lanka.
I could have bought a 2011/12 Merc E class in here for the same value my parent's car in Sri Lanka.

However the whole situation has some good n bad points to consider.

Dear all,
DIMO profits is not based on Automobiles they have some other s businesses too..while others main income is Auto..
This just for your information...

A small analysis/comparison that I was doing on new vehicle registration, Tariffs and Profits of DIMO & UML. ( Not yet completed).




We need to remember demand for Motor Vehicles are sensitive to price of the vehicles. This is the reason government has increased duties to save its foreign exchange reserves.


Note: I do not have a financial interest on DIMO/UML

hemadama bambare welle kerekenne ne bolata. balamu apitath kawada hari wahanayak ganna anduwak ei. un kiyanne 2500 kala nomari hitapan kiyakla ne

mark wrote:sry guys,maharaja vahana anayana kara awasan..
(

True True True. When their stocks are over and outdated, again the taxes will be reduced

To cut a long story short please, the experts what is your advice on motor stocks. Buy, Sell or Hold in the current scenario. All advices prior to off loading please !

illuminati wrote:To cut a long story short please, the experts what is your advice on motor stocks. Buy, Sell or Hold in the current scenario. All advices prior to off loading please !

I am no expert . But the goal of the forum is not give any advice to buy sell or hold.

We in the forum should different insights and since there are all adults in the forum they should look at all different insights and use their judgement to make their decision. It is their money. Nobody here gets a commission ( I hope)

All I can say is there will be profit drops for all companies in this sector who deal with primary motor vehicles.
Still some companies might survive better in this medium term issue more than others. Motor sector Pe is very low already . SOme companies trade near NAV , so if people believe these companies will earn negative profits ( losses) and their NAV will go down, then they can sell. If they feel motor sector is undervalued already reflecting this issues and this issue is medium term then they can hold at their risk. Buying right now , you decide.

Anyway my insights are usually different from short term volatility players. So if you are one them just know any share can give return if bought and sold at the right time

I wonder how countries inhabited by humans like other countries other than Sri Lanka, don't take double, triple extortions from the citizens and still control the traffic, balance of payments or whatever, oil prices etc.

aj wrote:I wonder how countries inhabited by humans like other countries other than Sri Lanka, don't take double, triple extortions from the citizens and still control the traffic, balance of payments or whatever, oil prices etc.

Those countries have 60% income tax, 80% inheritence tax, 40% corporate tax. 20% tax on capital gains. are you happy with that?

mono wrote:

aj wrote:I wonder how countries inhabited by humans like other countries other than Sri Lanka, don't take double, triple extortions from the citizens and still control the traffic, balance of payments or whatever, oil prices etc.

Those countries have 60% income tax, 80% inheritence tax, 40% corporate tax. 20% tax on capital gains. are you happy with that?

@Mono,

I do not know which country you talk about. But some countries do not have as much tax as you have mentioned. Tax logic is that more you earn more you pay tax. Inefficiency of tax authorities/government should not be a burden on average citizens.

See UK tax rates here.

Apr 02, 2012 (LBO) - Sri Lanka's motor distributor stocks fell in the first hour of trading following a steep hike in tax on vehicles over the weekend though trading volumes were low, brokers said.

United Motors Limited, which has the agency for Japan's Mitsubishi, opened at 108.00 rupees and fell 5.80 to 102.20 rupees, slipping 5.4 percent.
Diesel and Motor Engineering Limited fell 42.20 rupees to 940.00 slipping 4.3 percent.

Colonial motors fell 29.80 cents to 290 rupees on 783 shares traded, falling 9.3 percent.

"To some extent the market had already anticipated and increase in taxes, which is why motor companies have been underperforming the market," Channa Amaratunga, an independent analyst said.

"Together with higher interest rates and a weaker currency, a decline in profitability of motor companies was expected.

"But the extent of the excise duties did take people by surprise."

There was no trading in Sathosa Motors, which has the agency for Isuzu. Commercial vehicles were largely untouched by the taxes, except three wheelers which are used as taxis.

Sri Lanka triggered a balance of payments crisis in mid 2011 by not raising interest rates and engaging in sterilized foreign currency sales despite repeated warnings from independent analysts, economists and the International Monetary Fund to take corrective measures.

The government in particular borrowed heavily from the banking system to manipulate energy prices and keep loss-making state enterprises afloat.

Though corrective steps have been taken in the form of higher energy prices, an increase in interest rates and a reduction in sterilized currency sales by the Central Bank the finance ministry hiked taxes on motor car imports.

Some of the steepest increases have fallen on motor cycles, at time when lady drivers were just starting to use scooters like in many East Asian nations.
http://lbo.lk/fullstory.php?nid=1015280986

I wote and talk for this government

mono wrote:

aj wrote:I wonder how countries inhabited by humans like other countries other than Sri Lanka, don't take double, triple extortions from the citizens and still control the traffic, balance of payments or whatever, oil prices etc.

Those countries have 60% income tax, 80% inheritence tax, 40% corporate tax. 20% tax on capital gains. are you happy with that?

Yes very happy. Because those taxes are used to build roads, public transportation, trams, trains, buses, emergency services, you don't have to worry about buying a car, place to live or buying food. (I'm not talking about USA)

mono wrote:

aj wrote:I wonder how countries inhabited by humans like other countries other than Sri Lanka, don't take double, triple extortions from the citizens and still control the traffic, balance of payments or whatever, oil prices etc.

Those countries have 60% income tax, 80% inheritence tax, 40% corporate tax. 20% tax on capital gains. are you happy with that?

There is a good governance and transperancy exist.
Plus they do not spend on non viable projects.
Our country's curse is we are voting like idiots and ruled by idiots.