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Vehicle assembling companies deny Govt. Rs. 100 billion in taxes

By: Staff Writer

June 30, Colombo (LNW): The Sri Lankan government has reported that during a ban on vehicle imports, 44,430 vehicles entered the market, resulting in potential tax losses amounting to Rs. 100 billion.

This revelation came after discussions with local vehicle assembly companies. Of these vehicles, 38,144 were motorcycles and 6,286 were motorcars.

Vehicle assembly in Sri Lanka dates back to the 1980s with the establishment of the Upali Fiat car assembly, pioneered by Upali Wijewardene.

A formal vehicle assembly factory was set up in 2002. Despite restrictions on importing used vehicles older than three years, imports continued by dismantling vehicles before shipping. These vehicles were often older, having been used for 5-6 years.

Since 2004, Sri Lanka has had a local vehicle manufacturing facility producing vans and cars, assigning vehicle identification numbers according to local standards. The first locally assembled vehicle was launched around 2006.

Taxes on vehicle production are governed by the Excise (Special Provisions) Act No. 13 of 1989, allowing for exemptions and levies as amended through gazette notifications, the latest being gazette No. 2364/36-2023 issued on December 31, 2023.

The Act outlines five methods for tax deductions, including provisions for foreign ambassadors, presidential concessions, duty-free shop purchases, and ministerial gazette notices aimed at economic conditions.

This situation underscores ongoing issues in tax compliance and regulation within Sri Lanka’s vehicle industry amidst efforts to balance economic development and revenue collection.

Around 2006, Sri Lanka’s first locally assembled vehicle was released to the market. Taxes were also levied on the production of these vehicles under the Excise (Special Provisions) Act No. 13 of 1989. According to this act, taxes were both imposed and exempted.

The act clearly outlines the procedures for collecting such charges and granting exemptions. Specifically, Section 3(i) of the Part 2 of the act explains the manner of taxation and tax concessions.

The minister has the authority to levy and set taxes, and a gazette is issued for this purpose. This gazette has been amended from time to time, with the latest amendment being gazette No. 2364/36-2023, issued on December 31, 2023.

According to the Excise Act, five methods of deducting tax on vehicles or any other products have been discussed. One method is for foreign ambassadors and those at the United Nations, and the criteria which can be used to exempt their taxes is clearly stated in the act.  The second method allows the President of the country to grant tax concessions on imported goods. The third method of tax exemption permits tax relief for items purchased from a customs duty-free shop. The fourth method allows the minister to grant tax concessions through a gazette notice, considering the state of the country’s economy.

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