New import duty system for tyres

COLOMBO: A recent Government move to end revenue losses amounting to several billions of rupees as a result of under-invoicing by some unscrupulous importers of tyres, has been welcomed by local industry and legitimate importers.

Effective May 15, importers of tyres are required to pay a tyre weight based duty of Rs. 80 per kg or 28 per cent of invoiced value, which ever is higher. Previously, duty was computed at 28 per cent of value only.

The change in the method of computing duty came, an industry source said, after government officials found that some imported tyres were being invoiced for Customs duty purposes at a price lower than even the value of its principal raw material, rubber, at the point of entry into the country.

"It is impossible for the price of a manufactured tyre to be less than the price of its weight in rubber," the source pointed out, disclosing that the practice of under-invoicing had deprived the government of revenue amounting to billions of rupees.

Besides rubber, tyre manufacture also involves inputs of other raw materials such as nylon tyre cord, carbon black, rubber chemicals, bead wire and zinc oxide, in addition to the manufacturing costs like fuel, electricity and labour and the cost of finance.

After making a detailed study, it was estimated that if tyres were imported and valued at the correct price, the duty at 28 per cent would be in the region of Rs. 80 per kg as against a low of Rs. 22 per kg being paid by some unscrupulous and immoral importers.

As a consequence of this practice, tyre import revenue which used to be the 7th highest earner for the government dropped to 17th position.

"On the new basis, the importer pays a realistic duty even if he has under-invoiced the value of the tyre," he explained.

The new duty system is also fairer by local manufacturers, whose costs have risen substantially consequent to increases of 72 per cent in fuel prices since April 2006, a 25 per cent hike in electricity costs, higher interest rates and the effect of inflation, the source said.

Leading importers who were disadvantaged by the practice of under-invoicing by their less scrupulous competitors have also welcomed the new duty system, he added.