more tax on cars to cut imports & 135% rise in electricity

Sri Lanka has further raised taxes on cars to discourage imports and save foreign exchange, officials said Monday.

The new tax, which adds 10-percent import duty on cars and vans, is to be rubber-stamped by parliament this month although customs authorities have been collecting it since January.

Sri Lanka has no car manufacturing industry and imports mainly from Asia and Europe with duties ranging from 250 to 350 percent before the new tax.

The finance ministry said the hike is also to discourage imports and save foreign exchange.

The island's overall imports jumped 10.2 percent in 2007 to 11.30 billion dollars, the central bank said last week. Petroleum products accounted for nearly 60 percent of import costs.

Total vehicle registrations in 2007 was flat at 278,000, according to customs figures.

'We have seen a 25 to 30 percent drop in overall vehicle sales in the past year alone. The taxes makes it impossible for first time buyers to own a vehicle,' said Ranjan de Silva of the Motor Traders Association.

The price of a second hand, four-year-old Toyota (nyse: TM - news - people ) Corolla will reach 40,000 dollars, car dealers said.

'Right now, we can't dispose the stocks we have in hand, let alone import new ones,' said Berty Widanagamage, spokesman for the Used Vehicle Importers Association of Sri Lanka.

'Interest rates are over 20 percent, inflation is over 21 percent and even leasing companies are feeling the pinch. We are finding it very difficult to survive,' he said.

Prices of essentials have soared as the government pours 1.5 billion dollars to fight Tamil Tiger rebels this year, up 20 percent from last year.

Electricity charges are set to go up by 135 percent from March, under a hike proposed by the state-run Ceylon Electricity Board monopoly.

Source: forbes