26 October, 2020

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An Environmentally Friendly Vehicle Tax System For Sri Lanka

By Lal de Mel

Lal de Mel

Lal de Mel

There were many complaints in the news media regarding the increase in the Excise Duty of Toyota Prius cars which are used by most taxi companies for the transport of tourists from the airport, because of the high fuel efficiency, internationally accepted safety standards and the long term durability of the vehicle. When a former Minister now representing the joint opposition made an allegation that the duties of vehicles were revised recently to please the Indian authorities, I decided to carry out a study of the Excise Duty structure of motor cars.

Dr R H S Samaratunga, the Secretary to the Ministry of Finance headed the Trade &Tariff department of the Ministry of Finance from the time the Tariff Committee headed by Mr Nihal Jinasena was replaced by the Trade & Tariff Cluster of the National Council for Economic Development (NCED) and the Transport Cluster of NCED. This was during the time of President Kumaratunga. Professor Amal Kumarage of the Moratuwa University was appointed as the Co-chair of the Transport Cluster with the responsibility of planning the transport strategy and the vehicle tariffs. The writer was appointed as the Co-chair of the Trade & Tariff Cluster with the responsibility of rationalising the tariffs to three bands and introducing additional tariffs to protect local producers as well as the consumers. Dr Samaratunga was responsible for submitting the recommendations for implementation to the Secretary to the Treasury. Dr Samaratunga was a very intelligent and hardworking person with high integrity. The rational vehicle excise duty structure in Table 1 shows that there is no bias in this duty structure. Revised Excise Duty Structure of Motor Cars

The term Excise Duty on vehicles implies that it is a charge levied because of the environmental impact of the particular vehicle. The current Excise Duty structure shown in table 1 appears to be rational, if the emissions are directly related to the engine capacity. This assumption was correct twenty years ago before the launch of energy efficient hybrid motor vehicles. The weakness of the duty structure is in basing the excise duties of hybrid vehicles on engine capacity, rather than the certified fuel efficiency, which is directly proportional to the carbon dioxide emissions.
In developed countries the taxes are based on carbon dioxide emissions. This helps them to directly compare the environmental efficiency of all fossil fuel based vehicles. The EU environmental target for 2015 is 130g of carbon dioxide/Km as the vehicle fleet average for all manufacturers. The 2021 standard is 95g/km. The tariff structure in UK based on carbon dioxide emissions, which is directly related to the fuel efficiency, is shown in table 2.UK Tax Structure for Cars

The CO2 emissions for the 2016 Toyota Prius with an engine capacity of 1797 cc vary from 70g/km, with an average fuel consumption of 94.1mpg. This is a 21.3% increase from the 89g/km and 72.4mpg achieved by its predecessor. The development of the 1.8-litre VVT-i Atkinson cycle petrol engine to produce a world-best 40 per cent thermal efficiency has contributed to this fuel efficiency. The link is given below.

According to the link given below, the most fuel efficient Maruti-Suzuki petrol vehicle is the Alto K10 with a fuel efficiency of 24.07kpl produced by its 998 cc engine. The 2016 Maruti Alto 800cc is 9% more fuel efficient than the previous model with a mileage of 24.7kmpl or 58mpg and hence now more fuel efficient than the Maruti K10. The Renault KWID with a 796cc engine and carbon dioxide emission of 102g/km, tops the list with a fuel efficiency of 25.17kpl or 59.2mpg. All these cars are available in Sri Lanka.

The 70g/km 1797cc Prius 2016 is 31.4% more environment friendly than the Renault KWID, the most environment friendly car imported from India. The excise duty at Rs 1,500/cc is Rs 1,194,000 for the Renault KWID. The excise duty on the Maruti 800 is similar. The Excise Duty on the 2016 Prius with a rated fuel efficiency of 94.1 mpg is Rs 4,000/cc x 1797 cc = Rs 7,188,000. Hence, the excise duty of the 2016 Prius is 6 times more than the 2016 Maruti 800 with a fuel efficiency of 58mpg, which is 38% less than the 2016 Prius. These examples show the urgent need to change the excise duties of hybrid vehicles to be based on the certified carbon dioxide emissions.

Conclusions

The above data shows that there is an urgent need to base the excise duties of all hybrid cars on the certified fuel efficiency or Carbon Dioxide emissions, rather than the engine capacity, as in developed countries.

A proposal to base the Excise Duties of all motor vehicles based on the certified fuel efficiency and the fuel used may be considered for the 2018 budget.

There is also a need to equip at least the University of Moratuwa with a test bench, to certify the fuel efficiency of vehicles, to help Sri Lanka to develop minimum fuel efficiency targets for all vehicles.

The EU environmental target for 2015 is 130g of carbon dioxide/Km as the vehicle fleet average for all manufacturers. Sri Lanka should set this target for new car imports in 2019.

There is also a need to consider an annual road congestion levy, based on the square area of each vehicle, to fund the road development. This needs to be given the consideration of our planners. This is the practice in UK.

References:
1kmpl = 2.35215mpg
http://www.customs.gov.lk/tariff/xid160527.pdf
http://carfueldata.dft.gov.uk/
http://carfueldata.dft.gov.uk/search-by-ved-band.aspx
http://carfueldata.dft.gov.uk/additional/aug2015/VCA-Booklet-text-Aug-2015.pdf

2016 Toyota Prius MPG and CO2 revealed

Most Fuel Efficient Petrol Cars in India [Top 10]

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Latest comments

  • 3
    0

    An excellent suggestion! Thank you Mr. Lal De Mel. The worlwide concern over carbon emssions means that Sri Lanka must move with the times by revising our tax rates on emission free vehicles.

  • 3
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    This is the first time I see Lal with an article. It is based on facts and figures and should open the eyes of the Finance Minister and others who just follow past practices without studying how the developed world deal with these issues. Very nice article. Lal, keep writing and educate the fools.

  • 3
    0

    Mr De Mel, you are absolutely correct to suggest vehicle taxation should be based on Co2 emissions & not by engine capacity, even though there is a correlation between the emissions & engine size.

    Accordingly, in UK, almost all hybrids & electric cars are not liable for the annual road tax, which is equivalent to the revenue licence paid to the RMV in SL, as tail pipe emissions are less than 100 grams per KM of Co2 . However, despite a £5000 incentive by the UK Govt. (now reduced to £3000) & not having to pay the £5 per day congestion charge for entering London, the demand for hybrids & electric cars in UK, although gaining popularity, is still low. It has been proven that conventional modern cars, particularly, diesel vehicles with Particulate Filters (PDF) are ‘cleaner’ & better in terms of overall economy & running costs, though there is some concerns of NOX emissions, which in the current context, is negligible. With more manufacturers offering electric cars, the initial high cost of purchase has come down, making it more affordable but in UK, public charging points are still not enough for recharging if there is a sudden boom in sales, although there are phased plans for expanding charging points. Considering the battery range of around 70 miles at best, fast charging (takes about 3 hrs) shortens battery life, so several employers are now having a few parking spaces equipped with chargers so that employees can charge their vehicle while at work so that the cars will be fully charged for the return journey home at the end of the day. Total electric vehicles offer ‘range extender’, a small engine to charge the battery while on the run, therefore, dependence on domestic / public charging is not an issue, yet, before providing incentives for electric cars, the infrastructure should be in place & also the fact, that in SL, electricity is generated by coal fired, environment polluting power plants which is barely adequate for domestic consumption. So is it necessary to offer incentives for electric cars? There are very efficient conventional petrol & diesel engine cars now that offer similar economy & low emissions as hybrid / electric cars which are much cheaper in price.

    The other anomaly in SL is the annual emissions test. The testing authority has a monopoly but who determines the amount of emissions discharged by a vehicle as each model has varying levels of emissions. Older cars emit more emissions compared to equivalent newer model & SL has a large population of very old (pre catalytic converter) cars which emit very high levels of toxic emissions, so a blanket value for all vehicles is ridiculous. The emission test in UK is done during the annual MOT fitness test after its third year & MOT test stations have emission data applicable to all the models on the road in UK, supplied by the licensing authority who is overall responsible for conducting the test. In SL, the annual emission test is just another revenue earner for the Govt. & a very good income for sole establishment that conducts the test.

    If there are knowledgeable people in the Motor Traders Association & at Katubadda University, it’s time they came forward to advise the Govt. on fairer system of taxation & stop the monopoly of emission testing.

  • 2
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    Thank you Raj for making the readers aware of the status in UK. The previous government granted attractive concessions for hybrids & electric cars, probably based on the advice of Moratuwa University professors. Hence, many motorists and the taxi companies preferred to buy hybrid vehicles. Nissan Leaf Electric cars were purchased by the people with solar panels as second cars, to practically eliminate electricity and fuel bills. Most high users of electricity have installed solar panels, as the pay back period is less than 5 years.

    In response to the protests by the environmental lobby, once again the excise duty on electric has been reduced. while the excise duty of the Prius was increased by more than Rs 3 million.

    Diesel vehicles are fast becoming popular after the reduction of the excise duty on diesel vehicles,accompanied by the removal of the diesel fuel subsidy. This is a positive development.

    • 1
      0

      Dear Mr De Mel

      Thank you for acknowledging my comments in support of your article. However, I would like to clarify my point that hybrids / ‘plug-in’ electric cars are still dependent on fossil fuels, & in fact, as you may be aware, only a ‘temporary’ solution of car manufacturers to meet strict emission laws of developed countries until ‘zero’ polluting alternate energy sources, such as, fuel cells are developed to take over from fossil fuels. Current conventional vehicles are able to match the emissions of hybrids/electric vehicles & are relatively less expensive, apart from SL where hybrids / electric cars are cheaper due to the lower rate of import duty. In UK, for example, the consumer has a choice, as the end result is very much similar in overall costs, therefore, as you correctly state, tax should be based on emissions, which is the key factor & not the technology.

      In SL, solar power makes sense but not everybody will benefit due to the large surface area required for the solar panels & a consistent supply of energy cannot be certain all the time, not to mention the high cost of installation. So at the end of the day, whether its a hybrid or electric, SL is still dependent on fossil fuels for the supply of energy, therefore, there should be no discrimination between conventional, hybrid or electric vehicles but taxed according to the level of emissions.

      On the subject of pollution, since a majority of vehicles on SL roads are well over 20 years old, the Govt should consider a plan to gradually phase out inefficient & polluting vehicles & encourage low emission new vehicles to benefit from modern technology but by continuously increasing import duty on new vehicles, only a privileged few with permits are able to own a new car, which, again are mostly luxury vehicles with higher emissions.

      So far, the emission issue has been a source for generating income for the Govt. & no effort made to actually limit pollution. If the Govt. is serious about its green credentials, getting rid of older vehicles, including 2 stoke 3 wheelers, which should be converted to LPG until completely phased out, should be in the agenda. The current emission testing is also a joke & the monopoly stopped by establishing appropriate standards & test centers.

  • 5
    0

    Dear Mr. De Mel
    Your very erudite article is an eye opener to many Sri Lankans .I hope in future people will write on the basis of facts and subsequently give the source when referencing. I think you have hit the nail on the head when you said that we need to follow the example of London , Norway and Singapore in terms of congestion charging because Colombo City is highly congested and we should restrict by taxing road usage according to time and place.We should also give priority to public transport and increase public transport accordingly ,Rail electrification ,LRT, BRT, Monorail are the options available today.
    In other words a transport policy is a holistic one which encourages maximum utilization of existing resources.In certain countries cars carrying more than two are given priority .Why don’t we do it here too?
    The most important thing is to consult the stakeholders before implementing any policy.

  • 2
    0

    Our problems on the roads in SL is bad traffic management. If one looks at the above theories and a bus occupies two lanes of the road when it should be occuping only one lane all above does not hold water. 50% of the road is not usable.

  • 1
    0

    Dear De Mel, Raj etc,
    One thing is for sure that we must go for zero emission vehicle and best possible bet is electric cars but as Raj mention that too indirectly consume electric from national grid which produced by coal or petroleum (lets leave hydro aside), then what’s the point of giving concession for electric vehicles UNLESS those owners installed solar at their premises ???

    To kill two birds in one stone, Government may consider 100% tax concession only who have solar installed in their premises which reduce carbon footprint on greater extend

  • 0
    0

    Zero Emission Electric vehicles as well as plug in Hybrids are required to meet the needs of motorists. In Sri Lanka most high users of electricity are already using solar panels to generate electricity, because the payback period is now less than four years. I believe most of the electric cars and plug in hybrids have been purchased by this segment,to reduce the carbon foot print. The recent reduction of the Excise Duty on electric cars once again to a very attractive rate, is an eco friendly action.

    Excise Duties based on carbon dioxide emissions will help the market to meet the needs of motorists and reduce the vehicle emissions in the cities.

    • 0
      0

      Lal,

      “Zero Emission Electric vehicles as well as plug in Hybrids are required to meet the needs of motorists. In Sri Lanka most high users of electricity are already using solar panels to generate electricity, because the payback period is now less than four years. I believe most of the electric cars and plug in hybrids have been purchased by this segment,to reduce the carbon foot print. The recent reduction of the Excise Duty on electric cars once again to a very attractive rate, is an eco friendly action. Excise Duties based on carbon dioxide emissions will help the market to meet the needs of motorists and reduce the vehicle emissions in the cities”.

      With that you have thrown cow dung on to your article, which I copied to preserve.You and I are both from the Science faculty at PDN and I did not expect you to make that comment.

      Plug in hybrids and electric vehicles use power either from the National Grid or may be from generators at home, which is very unlikely.The grid gets power from Hydro sources,Solar, Wind and during the last six months mostly from thermal sources using fossil fuels, which yield GHG when fired.

      What has happened is that the emmission of Carbon Dioxide and any other Green Houses gases is no longer form the tail end of the car but from the flue end of the fossil fuel burner.These vehicles are not eco-friendly.It is akin to an woman having a surrogate husband.

      The solution to the GHG emmission is the use of Hydrogen vehicles.If the hydrogen is imported, it will be as bad as importing fossil to our economy.The hydrogen can be generated via the Butanol fermentation of Rice the current love baby of this govt. Many other sources are also available, which goes waste.

      I suggested that a to Minister in this Govt, reputed to be Engineer, he did not even care to reply.That is the quality of our intellectuals.

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