Prohibitive duties on vehicle imports, booze and fags up

Govt. tries to hold ballooning trade deficit

March 31, 2012, 7:06 pm , Sunday Island

The government yesterday slapped prohibitive taxes on vehicle imports including three-wheelers and also hiked duties on liquor and cigarettes in measures imposed to rein the ballooning trade deficit, limit fuel consumption and catch-up revenue shortfalls consequent to fewer vehicles coming in.

Industry sources estimated that the price of a bottle of arrack would go up by Rs. 50 if there is no import duty change on spirits while the finance ministry said that cigarettes will go up by a rupee a stick.

Beer prices will definitely rise but a spokesman for the Lion Brewery Group said yesterday that ``we can take a call on that only tomorrow.’’

The higher import duties on vehicles go up by nearly 100 percent according to the finance ministry announcement which noted that the import of motor vehicles had rocketed from 211,679 in 2009 to 523,963 last year.

The ministry hoped that the new tariffs will curb imports and reduce the country’s gaping trade deficit which hit a record USD 9.74 billion in 2011, nearly double the previous year’s $ 5.2 billion.

``The new taxes come into effect from March 31 and it is hoped that this will slow down the demand for imports of vehicles and reduce import expenditure,’’ the ministry statement said.

Car imports last year shot up dramatically to 54,285 units from 3,421 two years earlier, figures released by the ministry revealed. This followed a 50% reduction in import duties in 2010.

Three-wheelers, pouring into the country in numbers, grew from 34,563 in 2009 to 91,230 in 2010 and 137,816 will have the import duty raised from 51% to 100%. Duty on motorcycles were raised from 61% to 100%.Taxes on petrol-driven cars have been raised to 189 to 275% from the prevailing 120 – 189% depending on size.

The ministry noted that the surge in vehicle imports had caused congestion on the roads and raised the demand for fuel.

The huge trade deficit has undermined foreign reserves and weakened the rupee which has lost 15% against the dollar this year.

There was no word on whether the government will tighten the issue of duty free permits to privileged groups including politicians who are provided both taxpayer-paid official cars and duty free permits for private purchases and officials who enjoy similar perks.