Amid tarriff wars, Colombo resumes car imports

A move to increase tax revenues, but risks undermining domestic production that had experienced a period of strong expansion. The association that brings together operators expresses great ‘concern’. For experts, a tax regime ‘that incentivises locally assembled vehicles’ is preferable.

Colombo (AsiaNews) - Sri Lanka's car assembly sector, which has recently expanded significantly, is threatened by the recent decision to impose new taxes and to lift the ban on foreign imports, without introducing protection for local companies at the same time. Hence the alarm of the operators, who believe that the current measures could seriously damage the progress achieved.

On the island there are 17 component assembly plants, which produce various types of vehicles from cars to SUVs, and even three-wheeled electric vehicles.

A sector that supports over 15 thousand direct and indirect employees, protecting its impact on the national economy. The local operators' association has expressed great “concern” about the government's decision to resume the import of “Completely built units” (CBUs), starting last February.

Although taxes on imported goods are one of the main sources of government revenue, those applied to car spare parts play a huge role in controlling the automotive industry.

This is because the country does not have the technology necessary to design all car spare parts locally, and some of them must necessarily be imported.

Government policies therefore seem to focus on tax revenue, while for operators an increase in costs makes it increasingly difficult to be competitive on the market. Furthermore, these taxes change very frequently, fuelling the uncertainty even more and thus proving unfavourable to the automotive industry.

Nalin Welgama, founder of Ideal Motors, emphasises that the current measures could ‘severely damage the progress made’. For this reason he wanted to merge his company Ideal Motors with the Indian company Mahindra and Mahindra, so as to be able to assemble vehicles locally, thus promoting the national automotive industry.

Sri Lanka currently has 17 assembly plants, but another 17 investors are queuing up to join the market, promising - at least on paper - sustained growth.

Mechanical engineering experts Buddhini Samaratunga and Senaka Adikari told AsiaNews that ‘although the government's move to remove the ban on vehicle imports is aimed at increasing tax revenues, it could undermine the growth of assembly companies’.

On the contrary, they add, a tax regime ‘that incentivises locally assembled vehicles’ is preferable because it is ‘necessary to keep the industry competitive, attract investment and thrive in the long term’.

‘Currently, Sri Lanka's auto component manufacturing sector is gaining a reputation for high-quality manufacturing, positioning the country as a critical link in the regional supply chain. Work is underway, the experts continue, to increase the export revenue from components from 800 million dollars to two billion dollars within five years, while generating another 45 thousand jobs.

The government's standard operating procedure (Sop) for the sector, which has provided a defined regulatory environment, has encouraged national and foreign investment’.

According to industry operators Mayantha Kulasekara and Chatura Dissanayaka, ‘Sri Lanka has the opportunity to explore joint ventures with the already established automotive sector in Tamil Nadu [India] to demonstrate its presence in the South Asian region.

Electric vehicles (EVs) are not a favourable option, they continue, due to the high initial price and the scarcity of public charging stations, which could discourage sales in the country.

The increased energy demand of electric vehicles will also put pressure on the country's grid. While the domestic automotive industry is developing, immediate action is needed to protect domestic producers and sustain long-term wealth in a challenging and emerging global market.