BUDGET 2006-07: Stop and go. Still the boom is on

Kathmandu, July 4:

Despite itchy tax provisions, the Nepali automobile sector is riding smoothly with an annual average growth of over 12 per cent, making it one of the largest employment generators for the people and revenue providers for the government.

Nepal has the highest customs duty on the import of vehicles in the South Asian region, which accumulatively goes up to 180 per cent, making the dream to own a car dearer. However, the pace of growth has never slowed down. From 305,395 vehicles being registered in 2000-2001, the figure has jumped to 472,795 in fiscal year 2004-05.

The Department of Transport Management (DoTM) figures show that Nepal saw an impressive increment of 54.81 per cent in new vehicles during the last five years. It clearly tells that the sector is growing exponentially despite thorny duty provisions and infrastructure developing at a snail’s pace, especially road network expansion and upgrading of existing ones.

While the growth over the period has been indicative of an increased purchasing capacity of people and changing lifestyle, it has also put the infrastructure for surface transport under unprecedented stress. For instance, only 35 kilometres road was built during the entire fiscal year of 2004-2005 while the number of vehicles registered far exceeds in proportion.

The continuous growth in automobile industry has been attesting to the expansion of a section of the society that can absorb the rising costs of vehicles and high taxes, despite a prolonged sluggish economic growth.

An interesting fact to note is that out of the total vehicles registered throughout the country, over two thirds are in Bagmati zone alone and more than 58 per cent vehicles are in Kathmandu valley alone. It means about 275,000 vehicles registered in Nepal are plying on 1,345km long roads of the valley.

This has put an enormous pressure on the urban infrastructure in and around the Kathmandu valley. The construction and expansion of roads has simply been not enough to keep up with the growing number of vehicles.

“This is mainly due to the government’s lackadaisical attitude,” says Suraj Vaidya, president of United Traders Syndicate, authorised distributor of Toyota motors for Nepal.

Industry insiders attribute that easy finance schemes at very competitive interest rates and availability of numerous models as reasons for an increment in the number of vehicles. The changing lifestyle added an advantage to some extent.

Pace of growth could have gone up at a better rate and access to transportation would have improved largely, Hikmat Bahadur Mali, president of Nepal Automobile Dealers’ Association (NADA) said.

“If there were pragmatic tax provisions on the import of vehicles as well as a realistic approach on infrastructure development, the growth in automobile sector could have been different,” added Mali.

Referring to Nepal, which has the highest customs duty on automobiles in the SAARC region, he said, “The government should not be conservative in revenue matters. Most policies are guided by old principals of raising more money through higher rate of taxes.”

A 40 per cent duty on lubricants and up to 15 per cent on essential spare parts has encouraged smuggling of these products from across the porous border with India.

The high duty on lubricants has also resulted in high prices of lubricants available in the market. This has discouraged vehicle owners from routine oil replacement and changing of spare parts, which according to industry insiders, leads to greater incidences of pollution and shorter lifespan of vehicles.

According a NADA’s estimation, Nepal is losing more than Rs 300 million annually on

imports of lubricants mainly due to high import duty. Nepal consumes about 10,000 metric tonne (MT) of lubricants but the customs figures show that only 6,000 MT is imported to the country. This means about 4,000 MT of lubricants are being smuggled through illegal channels.

Instead of trying to lower the duty as per the commitments made to the WTO, the government continues to enjoy levying high import duty forcing consumers to pay a very high price for vehicles they buy.

Keeping in mind the fact that the overall transportation sector contributes more than 15 per cent to the revenue, the investment on developing infrastructure had been woefully small.

The government has also been levying Rs 3,000 per unit extra on two wheelers, slotting them in the ‘luxury’ segment. Automobile dealers lament that the current customs duties are too high and placing automobiles and two-wheelers under the ‘luxury’ segment has dampened growth of the industry.

To address concerns over environmental pollution, the government has already started to phase out vehicles that are more than 20 years old, which needs to be implemented thoroughly. This provision should be strictly applicable to both public and private transport, which will atleast protect the environment and make room for new entrants.

There should be a clear cut time bound action plan to encourage clean technology and electrical vehicles, which will help in maintaining the quality of environment and also encourage use of domestic electricity in Nepal. This will reduce the use of fossils fuel, which is totally imported and save foreign currency, too.

Concerns over road congestion can be better managed if urban planners and concerned authorities are allowed more budget to build roads and flyovers and develop suburbs. Better traffic management is yet another challenge, particularly in major cites.

The challenge facing the government is how to generate more revenue while keeping customs duties low, so that more people have access to vehicles and transport. The other challenge is to maintain existing infrastructure and build new roads and routes to interlink the nation better.

Growing trend

Fiscal Year No of vehicles

2000-01 305,395

2001-02 354,955

2002-03 392,565

2003-04 432,264

2004-05 472,795

Source: Department of Transport Management

Thorny Business

customs Duty on Import of Vehicles

S.N. Types Of Vehicles Total

1. Car\ Jeep\Van 131.5 %

2. Micro Bus (11-14 seated) 131.5 %

3. Pick Up Single Cab 74.5 %

4. Pick Up Double Cab 91.5 %

5. Three wheeler 91.5 %

6. Motorcycle 62 % (Plus Rs 3000 per unit)

7. Dumpers 44.5 %

8. Delivery Van 114.5 %

9. Truck 44.5 %

10. Tractor 34.5 %

11. Bus\Minibus 44.5 %

12. Mini Bus (15-25seated) 63.5 %

13. Crane lories 29.5 %

14. Mobile drilling derricks 29.5 %

15. Fire fighting vehicles 24.5 %

16. Bumper 34.5 %

17. Electric vehicles 44.5 %

Source: Department of Customs (Customs Tariff 2004-05)