“A serious exercise has begun, because it inadvertently created a bias policy of favoring Indian-made vehicles over third country vehicles,” said a senior official at the Ministry of Finance (MoF).
The biggest distributors of Japanese and other overseas luxury vehicles labeled the regulations biased against them, and sought change when they recently met with finance minister Dr Baburam Bhattarai. Dr Bhattarai’s response suggested a commitment to address their concerns in one-and-a-half weeks.
Talking to myrepublica.com, revenue secretary Krishna Hari Baskota indicated that the MoF may take more time than previously indicated to make a concrete decision. "We are still calculating the revenue risk and other factors. Hence, I cannot say what sort of changes will be made and by when.”
Sources familiar with the issues said the upcoming changes could raise the existing two million rupee income, disclosing exemption ceiling to buy vehicles.
The income disclosure policy, which the government announced in its budget speech made in October and implemented through enactment of the regulations on December 15, 2008, makes it mandatory for buyers to disclose income sources if spending Rs 2 million or more on buying a vehicle.
Although it was aimed at compelling people to comply with tax regulations, and giving teeth to the Voluntary Declaration of Income Sources (VDIS) scheme, the policy has driven buyers away since its announcement in the budget.
“Rise in excise duty, which inflated vehicle prices by 15 percent, and appreciation of yen (Japanese currency) by over 40 percent had already pushed buyers into a dilemma. On the top, imposition of income disclosure policy has landed an axe on the business,” said Binod Aryal, general manager (operation) of the United Trader Syndicate (UTS), the distributor of Toyota.
Aryal informed myrepublica.com sales of Toyota cars and Sports Utility Vehicles (SUVs) have dropped by more than half over the last three months since the budget announcement.
"Sales have dropped to nil since the regulations came into effect," he added. Amid the lack of demand, UTS has left some 170 vehicles on the Indian side of the border.
Rabindra Man Shrestha, the chief executive officer of KIA Motors, said sales of its vehicles, all priced over Rs 2 million besides the Picanto, have also dropped by more than 50 percent during the period.
Likewise, sales of Daihatsu and Land Rover have almost ground to a halt. According to distributors, the drop in business has already caused the government to lose more than Rs 2 billion in revenue from the trade over the past three months.
Automobile trade is one of the largest revenue-generating sectors in the country, contributing over Rs 16 billion to the national treasury last year alone. With the rise in excise duty and other fees, which add duty to total some 230 percent of the import value, the government has estimated to mobilize some Rs 20 billion from this year’s trade.
However, the Nepal Automobiles Distributors Association (NADA) has noted the government will miss its target as restrictive policies, such as income disclosure regulations and higher excise duty, have shrunk overall automobile sales by over 30 percent.
“Fewer letters of credit have been opened amid declining demand. International reasons like a sharp rise in US dollar and Japanese yen have also added to the woes of distributors,” said a NADA member, arguing that the government will need to revoke its excise duty rise decision, as well as raise the income disclosure provision cap, if it wishes to rejuvenate the market.
milan@myrepublica.com
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