Sri Lanka tax increase on hybrid cars a ‘mistake’: energy minister

COLOMBO (EconomyNext) – The hiking of taxes on hybrids was a mistake, Energy Minister Champika Ranawaka who was a former environmental minister said.

Sri Lanka’s new United National Party-led administration where the Minister Ranawaka’s Jathika Hela Urumaya is a coalition partner sharply raised taxes on hybrid cars, which were previously lower than conventionally powered cars.

"It is a mistake actually," Ranawaka told Sri Lanka’s Foreign Correspondents Association.

Ranawaka, a former environmental minister has been keen to promote cleaner energy use and has pushed for solar and renewable energy, when he was in the ousted Rajapaksa regime.
Ranawaka said the Rajapaksa administration raised too much taxes from basic foods while the current administration was taxing the rich with a super gains tax.

The new regime raised taxes on hybrids as part of efforts to get more revenue after raising public sector salaries and cutting energy taxes.

Taxing petroleum and power is also considered one of the most fair and progressive system since it is rich people who use more energy, not just in Sri Lanka but all over the world.

In Europe, where state interventions are stronger and the so-called welfare state was invented taxation of petroleum fuel – which are cheap to produce – is much higher than in the US, where overall taxation and economic freedoms are greater.

In Europe cheaper petroleum is taxed and billions of dollars are given firms producing more expensive renewable energy.

However Sri Lanka has a regressive policy of taxing petrol at high rates and taxing diesel which are used by businesses and SUV owners at lower rates. Kerosene, which are used by boat-owners are also under-priced.

Taxing hybrids may also hurt state revenues as imports may slow, some analysts fear.

Sri Lanka has had a practice of restricting car imports during balance of payments trouble, which tends to worsen the problem.

Unlike other imports, passenger cars are taxed at levels ranging up to 250 percent or more, giving some of the higher revenues for each dollar spent by a private citizens.

Weak revenues triggers money printing, which worsens the BOP crisis, or requires higher interests that would have required, causing the economy tumble into a ‘hard landing’.