An equitable tax structure is necessary – Mahen Thambiah

February, 14, 2020

Designing a more efficient, equitable and sustainable motor vehicle tax system is necessary, Kia Motors (Lanka) Managing Director Mahen Thambiah said.

“I think currently there has been quite a lot of work gone into getting this tax structure worked out. The Government has to look at the structure in terms of bringing it to a level playing field. As a percentage, we are paying almost 200%, sometimes 300% tax. Whereas the higher-range vehicles, they are paying much less, even less than 50%,”  Thambiah said whilst responding to a question posed by a journalist during the launch of its new SUV model Kia Selto in Colombo recently.

“But that has been corrected because of the luxury tax that came in after November last year. That has sort of been balanced to an extent. But it does not help us, because we are not in that segment. We are still paying about 150-200% tax on some of the models,” he added.

“I don’t think they need to go back to the old rates but I think they can reform the tax structure to be more equitable,” Thambiah stressed.

Meanwhile, responding to a query from Ada Derana with regard to Electric Vehicle Market Growth, Thambiah made the following explanation:

“We have electric cars. I’m driving one by myself because we have brought it and we are testing it here. It has been working very well. But the fact is that there is a little bit of grey area because people are still apprehensive about the necessity to charge an electric vehicle and also how far they can go. Having said that, the new KIA is an electric one that is sold with a mileage guarantee of 300-400km. Now with that kind of mileage guarantee, there is a problem with the price because the electric cars are almost three to two times the price of normal gasoline or diesel car. So, when you take the tax structure, there are no benefits for electric cars because you are paying a high price on the purchase,” he stated.

Last October, the then-government revised the Luxury Tax formula on vehicles by resorting to calculate the tax based on the manufacturing cost or the cost, insurance and freight (CIF) value of a vehicle, instead of the previous used method based on the engine capacity.

The revised tax is applied on vehicles registered on or after November 1, 2019. The Luxury Tax on vehicles registered before November 1, 2019, was based on their engine capacity.

Accordingly, pre-November 1, the Luxury Tax was applicable on only three categories of vehicles—petrol vehicles with cylinder capacity more than 1,800cc, diesel vehicles with cylinder capacity of more than 2300cc and electric vehicles with more than 200kw power.

But after November 1, the Luxury Tax became applicable on all petrol and diesel vehicles with a CIF value exceeding Rs.3.5 million. A tax rate of 120 percent is applicable on the amount exceeding the luxury free threshold i.e. Rs.3.5 million.

The Luxury Tax applicable on hybrid petrol vehicles exceeding the CIF value of Rs.4 million is 80 percent and on hybrid diesel vehicles exceeding the CIF value of Rs.4 million is 90 percent.

On electric vehicles with a CIF value exceeding Rs.6 million, a 60 percent Luxury Tax is charged.