- Importers expects permission for imports in Budget 2022
- We expect Basil to prioritise EV imports: VIASL
- Industry predicts surge in prices if Budget unfavourable
By Shenal Fernando
The prices of reconditioned vehicles which had surged to unreasonable levels a few months ago have settled down to reasonable levels, claimed the Vehicle Importers’ Association of Sri Lanka (VIASL).
Speaking to The Morning Business, VIASL President Indika Sampath Merenchige confirmed that the unrealistic increase in vehicle prices has settled and that the current price is very realistic and reasonable.
While the current vehicle prices still represent a significant increase when compared to the market prices prevailing last year, Merenchige noted: “The current market prices are reasonable in the sense that, if vehicle imports were currently allowed, considering the increase in prices observed due to the depreciation of the Sri Lankan rupee against the US dollar and the prevailing high freight rates, the market prices of such imported vehicles in such a scenario would be at around these levels. Therefore, in my opinion the current market rates are fair and reasonable to purchase a vehicle at.”
Explaining further, he claimed: “This decrease in market prices was due to the fact that the market anticipates a favourable development in the Budget 2022 and if such expectations are not fulfilled, there is a risk that prices may surge to the previous high levels.”
Moreover, he noted that Minister of Finance Basil Rajapaksa had stated that in the event the vehicle import restrictions are removed, importation of electric vehicles (EV) will be given priority and that for such purposes, vehicle importers will be supported by tax cuts. The Minister had further promised that if the vehicle importers come to him with the necessary credit facilities in hand and with a solution to the prevailing foreign exchange issue in the country, he would grant permission to import EVs within a short period of time.
However, Merenchige admitted that currently, there is no timeline for the easing of import restrictions and that such restrictions will continue until the foreign exchange issues of the country are rectified. Moreover, the Government has publicly maintained that the vehicle importation restriction will continue during the next year as well.
Strict restrictions were placed on vehicle imports in early 2020 to curb foreign exchange outflows, following the significant loss of foreign exchange inflows from tourism amidst the Covid-19 pandemic.
Such restrictions are imposed by Gazette Extraordinary Notification No. 2176/19, dated 22 May 2020, which was published to amend the regulations that were stipulated by Gazette Extraordinary Notification No. 2171/5, dated 16 April 2020.
This resulted in a situation where there were no new vehicles in the market and consequently the lack of supply to match the demand for new vehicles resulted in a steep increase in vehicle prices.
Accordingly, reconditioned vehicle prices skyrocketed, increasing by over 50% in some cases. Merenchige, speaking to us on a previous occasion, mentioned that the price of the Maruti Suzuki Wagon R, which was around Rs. 3.5 million in 2018 had increased to Rs. 6 million; most Jeep models were at a price range of Rs. 15-20 million; and even non-popular vehicle prices had also increased by 25%.
In response to the increase in market prices observed at the time, Central Bank of Sri Lanka (CBSL) Governor Ajith Nivard Cabraal claimed: “It was observed over the past few months that an undue bubble was being formed in the prices of vehicles and that is not a good thing as far as any economy is considered.”
Moreover, he claimed that such a price increase could lead to certain destabilisation forces being created within the economy. Therefore, he claimed that it was imperative that this situation be addressed.
Consequently, Cabraal proposed allowing vehicles to be imported provided that there are no foreign exchange outflows involved and where duties are paid by foreign exchange.