Alleged unfair practise raises value of Mercedes Benz cars
Sri Lanka Customs, has initiated a discussion with one of Sri Lanka’s foremost car dealers on the basis of complaints that the company is operating a “dual valuation system” with serious financial implications to both, the government in terms of lost revenue and to parallel importers who have seen their margins slashed. Naturally, the market for these top-end cars is also stymied by the artificially higher price thanks to so-called “dual valuations.”
Deputy Director of Customs, K.K. Premanath, confirmed only that they were having discussions and denied that there was a formal enquiry launched. Purveyors of one of the world’s most sought after cars, have charged that the local distributor for Mercedes Benz is arbitrarily raising the valuation of cars imported into Sri Lanka.
Diesel & Motor Engineering PLC – popularly known as DIMO – the long standing authorised distributor for Daimler Benz have vehemently denied the claims. The Sunday Leader can confirm that two meetings have been held by Customs along with DIMO representatives and a representative of another motor dealer who is an established parallel importer of Mercedes Benz and other sought after marques.
At the centre of the growing controversy is the requirement by the Sri Lanka Customs that the local agent provide a valuation for any car to be imported. As in most parts of the world, imports of cars are done in one of three ways: by the authorised distributors, by private importers and the so-called “parallel” importers.
Parallel importers historically retail cars at a lower price or are able to supply cars at a premium beating long waiting lists from the factory appointed distributors.
Usually, manufacturers allocate a de-facto allocation system for each different country depending on the size of the market and the ability of their local distributor to sell models that are in demand.
This is especially more so, when a particular model is in great demand: the UK market for example would be allocated a greater proportion of cars than say Thailand or Sri Lanka as the market is so much larger. Long waiting lists generally create an artificial premium with parallel importers filling the gap by sourcing cars from different markets to meet the need to deliver the latest models no sooner they become available.
Equally, parallel importers identify and import little used cars for the local market at substantial price reductions when compared to similar vehicles offered by the official distributor.
In Sri Lanka any import of cars is only possible after a valuation is given by the manufacturer’s distributor. In the case of Mercedes Benz an importer needs to supply DIMO with the chassis number and the pro-forma invoice of the car to be imported. Based on that, DIMO use a set formula to arrive at a valuation for customs purposes.
This valuation will generally almost always be higher than the actual amount paid for the car by the importer – be it a parallel importer or even a personal import. The actual price paid is referred to as the transaction value and is disregarded by customs in order that a level playing field is set for calculating customs duty. In essence it is manifestly the most equitable manner to calculate duty.
Duty is always calculated on the valuation of the car by the manufacturer, which will start at the basic cost of the car, added to this are the various options that the car is fitted with and the cost of freight and insurance. The total is referred to as the customs value. In the case of used cars over six months old, this is the valuation used to depreciate the value of the car before arriving at the customs duty and other taxes.
Earlier last month, DIMO provided a pro-forma invoice to a parliamentarian for the supply of a Mercedes Benz E250 CDI. Along with its options the total FOB price was Euro 35,813; Freight and Insurance was valued at Euro 1,407 making a total of Euro 37,220 for the all important customs value of the vehicle or in local currency Rs 5.2 million. Duty is based on this figure. In this instance of course, the car was being imported under the duty free programme for Members of Parliament. If duty was payable on this car, the amount would be approximately Rs 9 million, making the “on the road” price in Sri Lanka of Rs 15 million approx.
DIMO also gave a valuation on a Mercedes Benz E250 CGi, to a private individual. The 2009 model, 1.8cc car was valued by DIMO at Euro 47,775 including all the options and the freight and insurance. The customs value of this car in local currency would be approx. Rs 6.9 Million.
The discrepancy in the CIF value of the two quotes is at the centre of this storm: Rs 1.4 million translates to something in the region of 26% higher. Both, the individual concerned and some parallel importers of Mercedes cars question why an older petrol version car is higher in value for customs purposes than a new diesel version.
Diesel cars are traditionally more expensive than their petrol counterparts.
DIMO’s Deputy CEO, Gahnath Pandithage was adamant that they have done nothing untoward. They use, he says a single methodology to arrive at a customs value figure no matter who the importer is: individual or parallel importer or even cars imported by DIMO themselves. Says Pandithage, “we have a long standing reputation to preserve and a long list of satisfied clients. We do not operate a dual track valuation policy. These are the baseless allegations of others trying to compete in an already busy and limited market place.”
The Sunday Leader has Gahnath Pandithage and their Chairman, Ranjith Pandithage, stating that they have not indulged in any form of “dual valuation policies”. There is, however growing controversy that this may well not be the case.
After an initial meeting with DIMO, we attempted to contact Mr. Jayawardena, the chief valuer for DIMO, on a number of occasions. On every occasion he was said to be “in the building but not in his seat.” There is however growing dissatisfaction at the valuations given by DIMO. Other importers complain that DIMO does not give a breakdown of the valuation. Instead a figure is arbitrarily put in with many importers unaware of exactly how and what is covered, in the valuation process.
A parallel importer said, “it would be fair and more transparent if DIMO showed us details, like full details of the valuation process.” Customs have asked DIMO representatives to report for another round of discussions next week in order that a breakdown of the valuations be stated – permitting the customs to verify the allegations of unfair valuations being given by DIMO.
Customs have also confirmed that they will be ‘looking into’ the transactions carried out by DIMO over the past six months to check if any cars have slipped through the net. Mr. Premnath, the Deputy Director of Customs, is said to be convening another “discussion” along with DIMO to establish precisely the basis upon which DIMO provide valuations. Customs value for all goods will be the same on an “apples for apples” basis.
sundayleader
