TAX: Who Really Pays?

The Sri Lankan government has announced new excise duty rates for vehicle imports, marking a significant step in resuming vehicle imports after a five-year suspension. On the surface, this move might seem like a straightforward tax on vehicle importers and users, but who really bears the cost of these duties?

It’s a common misconception that excise duties only affect those directly involved, such as vehicle importers or new car owners. In reality, taxes on businesses often ripple through the economy, ultimately impacting the average citizen. Here's how:

• Pass-Through Costs to Consumers: Importers and dealers adjust their pricing to account for the higher excise duties, leading to increased vehicle prices. Buyers, from individuals to businesses reliant on fleets, shoulder these costs.
• Impact on Services and Goods: Vehicles are integral to many sectors, including transportation and logistics. Higher vehicle costs can drive up operational expenses for businesses, which are often passed down to consumers through higher prices for goods and services.
• Wider Economic Effects: Increased vehicle prices could deter purchases, potentially reducing market activity and limiting the availability of affordable transport options. This, in turn, affects mobility and economic productivity.

While taxes like these are essential for government revenue and economic stability, it's crucial to recognize their broader implications. Excise duties on vehicles may appear to target a specific group, but the ripple effect means that, in the end, it's the ordinary citizen who bears the brunt of these costs.

As Sri Lanka resumes vehicle imports, policymakers and stakeholders must strike a balance between revenue generation and ensuring affordability and accessibility for all citizens.