What is the reason behind imposing such a higher tax to the imported cars?
Introduction
With the five basic needs of leading life, another term should be added and that is called the transportation. The current traffic situation and the rapid change of weather lead to an edge of private transportation for the high class, upper middle class and even for the middle class. Private car is always being a first choice for the consumers. In Bangladesh, buying a car is not that much financially easy as it costs high. The reason behind high cost of the car is always because of the high import duty. In the Bangladeshi constant, consumers have to pay even 100% tax for the importing cars. In this research, I am trying to find the justification behind imposing such high tax to the imported cars. I want to start with the speech of Finance minister of Bangladesh Mr, Abul Mal Abdul Muhit, that, “To augment revenue collection and to discourage imports of luxury vehicles, I propose to increase supplementary duty on the imports of luxury vehicles and restructuring of duty slabs I propose to fix the consolidated rate of depreciation at 30 percent for old, used and reconditioned vehicles not exceeding five years. Dealers’ commission for deduction from the value of such vehicles shall be 10 percent instead of existing 20 percent,” [1] this speech itself says that the Govt. wants to reduce the car import duty as it’s a public demand nowadays. The car importers always suggested developing transportation infrastructure should be focused rather than imposing high taxes on the vehicle. The duties currently in place on the imports of different cars range from 103 percent to 821 percent. As per BARVIDA[2], most of the cars on which there are proposals to increase duty are used by the middle class. How come middle class families can effort a car that consists more then 100 percent of import tax? “If the proposed supplementary duty on reconditioned vehicles is executed, vehicle import would reduce by 70 per cent, resulting in a decline in government’s revenue earnings,” said Habib Ullah Dawn[3].
Impacts and justifications against the import duty
Finance Minister proposed to impose more import duty of private car in the national budget FY2009-10. But some organizations and individuals are shouting against this proposal. They have urged review of the proposed new duty structure in the budget, terming it `in excess’ and saying it threatened to close down businesses.
But the question is who the users of private car are? How many people of Bangladesh have ability to pay money for a car? But Bangladesh Reconditioned Vehicles Importers and Dealers Association (BARVIDA) said most of the cars on which there are proposals to increase duty are used by the middle class.
What is the meaning of `middle class’? Bangladeshi middle class have no capacity to pay 0.5 or 1 million Taka to buy a car. If he has any illegal income is another question. There are no differences into 1 and to million if the money is illegal. It is clear that there is a relation between ownership of private car and corruption. So duty is not a problem for them who can think to buy a car. New budget proposes to raise 23.55 percent duty on cars of 1000 cc and under. Finance minister AMA Muhith, in his budget speech, said the new duty structure has been proposed to increase revenue collection and to discourage import of luxury cars. It is very urgent for Bangladesh not only in terms of economy but also the view of urban planning and balance of the society.
Impact of increasing rate of cars and tax affect
Bangladesh have no rules and regulations regarding entrance of private car. If you have enough money to purchase a car you can get it easy and cheaply just taking a license. As a result More than 10 thousand new cars entering in Dhaka City Street every year. Government is providing 3000 crore taka as subsidy for petrol/fuel supply, which could be spending for industrial purpose and public transport. But the private car owners are taking advantage of it. It is needed to stopping subsidized fuel and gas to private car owners. Mr. Hamid A. Mamun[4] said “There should have at least one 100 thousand taka environment tax on a private car and gradually making Dhaka city free of private car.” To import a 1500cc car, the traders have to pay 103 percent in duties altogether. However, to import cars between 1600cc and 2000cc, they have to pay 250 percent in duties.
“Such a slab should be removed,” said NAT Rouf[5], “This fiscal year; we could not import quality cars because of the high taxes.” Citing an example, Rouf said with 103 percent duty, a 1500cc car can be sold at Tk 20 lakh, while customers have to pay Tk 43 lakh for a 1600cc car due to the tax slab.
The duties, as set by the national budget for fiscal year 2009-10, are 250 percent for cars between 1600cc and 2,000cc, 350 percent for cars between 2,750cc and 4,000cc and 500 percent for the cars above 4,000cc. The importers bringing microbuses up to 1,800cc have to pay 20 percent duties, while hybrid cars up to 2,000cc were kept outside the purview of the tax structure of the outgoing fiscal year.
Habib Ullah Dawn analyzed the overall situation of affecting the new rate on old cars in a press conference at the national press club on the date of July 7th. In his analysis he said that, if the proposed duties on old vehicles come into effect, the prices of a Toyota Corolla will increase to Tk 15 lakh from Tk 10 lakh, Toyota Prado Tk 85 lakh from Tk 55 lakh and Mitsubishi Pajero Tk 78 lakh from Tk 22.63 lakh, Dawn told a press conference in Dhaka.
“The government’s target to raise domestic revenue income to Tk 2,500 crore from Tk 2,000 crore from the car import sector would not be achieved unless old vehicles import is not on its normal course,” the Barvida chief added.
Pointing to the 821 percent duties on the imports of the cars above 4000cc, he said such abnormally high tax has resulted in almost a zero import of such cars.
The import duty for the imported car is justified???
Every year even before the official announcement of our national budget, most people could sense what items would become costlier, thanks to the forecast by newspapers and electronic media. However, in this process some unscrupulous businessmen take the advantage of the pre-budget forecast and do brisk business depriving the government of due duty and tax. This year as well we came to know from the newspapers that the import duty on the motorized vehicles would go up in the upcoming budget and vehicles would become costlier, since the government is going to impose high tax on it. Some dishonest car importers have already opened crores of dollars LCs on various banks to import new vehicles and some have already stocked a large number of reconditioned cars and selling them at high prices, thus depriving the government of tax. The question is how these car importers became sure that car prices would go up in the market even before the approval of the budget? How was it possible for them to get sure on this matter without a tip-off from the higher authorities? Whatever might be the reason, the effect of this will not bear any good result for the government or for the general people as a whole. On the one hand, the government and the NBR[6] are going to lose thousands of crores of taka as revenue, and the general people are paying their hard earned money for buying these cars, falling prey to this tricky business by car importers and dealers.
Md Munir Uddin[7], said car imports did not drop after the high duties were imposed, and it rather increased in a sense. He said demand for cars is increasing by the day, as the economy is growing. Under these circumstances, the government should concentrate on improving the traffic systems, then on imposing high taxes.[8]
During July-April, more than 23,000 cars were imported.
In the budget for the 2009-10 fiscal year (FY) the government has imposed the following:
- 20 per cent SD (Supplementary Duty) on vehicles of up to 1500cc
- 60 per cent SD on vehicles between 1,501 and 2,350cc
- 100 per cent SD on vehicles between 2,351cc and 3,500cc.
These rates are only applied to used, also called reconditioned, cars. It may change before the next budget (2011-2012) as the Bangladesh Reconditioned Vehicles Importers and Dealers Association (BARVIDA) argues it should be reduced.
BARVIDA believes that raise the taxes on reconditioned car imports will hold back the current progress the economy is experiencing. The connection is that many small and medium businesses rely on the cheaper used car imports to do their business.
Conclusion
Finance minister of Bangladesh proposed to create a new HS code for separate classification in order to offer exemption from supplementary duty against import of hybrid motorcars. The minister also proposed to attach the conditions of minimum engine capacity of 1500 CC and import of at least 10 vehicles in one consignment by any taxicab company. The government’s clear-cut strategy and monitoring could have saved us a lot of revenue, but we have lost this opportunity and the government now needs to chalk out a plan to stop this tricky car business.
Arvada suggested 30 percent supplementary duty on cars below 1500cc, 45 percent for 1501-2000cc cars, 60 percent for 2001-2500cc cars, 100 percent for 2501-3000cc cars, and 250 percent for vehicles over 3001cc.[9]
The research paper shows effects from the both sides and the justifications are
µ Increase revenue
µ Traffic control
µ International trade policy
µ Import of quality car
After evaluating all the conditions and analysis, the suggestions are to increase the public transport for the general people and impose high tax to the imported cars so that got generate more tax revenue. Mr. Munim Choudhery said[10] “Is the raised duty in new budget enough? More then 90 percent of Bangladeshi family have no capacity of dream to buy a car. They need to introducing more public transports like rail service, double Decker bus etc. Government should establish quality cycle industry in Bangladesh and discourage importing bi-cycle”
So the proposal duty of car in new budget is very good step. But finance minister not proposed to raise any duty of luxury Cars over three to four thousand cc. The government can impose heavy duty on those.
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[1] See. Financial Express, page 7, 19th June.
[2] Bangladesh Reconditioned Vehicles Importers and Dealers Association
[3] President of Bangladesh Reconditioned Vehicles Importers and Dealers Association (Barvida).
[4] DC traffic, Dhaka North, Bangladesh Police.
[5] director of DHS Motors, the sole distributor of Honda cars
[6] National Bureau of Revenue
[7] deputy general manager (head of operations) of Rangs Ltd, Rangs Ltd is the sole distributor of Mitsubishi Motors in Bangladesh
[8] The New Age, 28th July, page 19, column 2.
[9] The Economists forum, topic 119, comments 18.
[10] Senior Lecturer, Rifles Public School & College, in the ECONOMISTS BLOG. Comment 73.