VAT Increase
The Value Added Tax (VAT) was increased on the 2nd of May to 15%. While widely reported that this would impact the vehicle market, the implementation of the Unit Rate Tax for duty calculation resulted in the exclusion of VAT in the duty calculations for majority of vehicles. According to an Assistant Commissioner, VAT Department, the increase was not implemented to increase vehicle prices, with the VAT Schedule not covering motor vehicles.
Exchange Rate
Appreciation of the Japanese Yen (JPY) coupled with the weakening Sri Lankan Rupee (LKR) has resulted in a continued increase in vehicle costs over the past 6 months. Vehicle importers have been forced to push up prices as profit margins continue to shrink.
For example, A Toyota Axio is ~JPY 2,380,000 (FOB basis), and assuming price has remained constant between January to June 2016, the cost of the vehicle would have increased by approximately LKR 366,000 in that period. Higher end vehicles such as the Toyota Land Cruiser, ~JPY 6,825,600 (FOB basis), would have increased by ~LKR 1.4 million.
UK Imports may see a nominal decrease in costs as the Sterling Pound hits a record low after market uncertainties prevail post BREXIT. The longer term impact on the Pound remains to be seen as current fluctuations are mainly due to market speculation. Changes in leadership and official action to leave the European Union may cause further weakening of the currency.
Note: Rates for Jan’16 to May’16 from Central Bank of Sri Lanka, June’16 rate caluclated manually
State of the Market: June 2016
Vehicle sales declined in June as increased duty rates caused signific– ant price hikes in popular models. While still better than January or February, the recovery of the market may be sluggish as sedan and SUV categories are expected to see reduced demand. The market composition may change further with small hybrids (less than 1000cc) and electric cars becoming more affordable, potentially converting demand from the other market segments.
Petrol Hybrids saw the largest drop in sales, falling to its lowest levels in 2016. Petrol cars also saw a drop, though remained above monthly sales in the first quarter.
Vehicle Registrations: 2016
THE MARKET