Glitzy Mercedes In Customs Controversy

[hyacc]

By Faraz Shauketaly

The subject of the controversy: Mercedes Benz 250

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 D*MO – 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 D*MO 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 D*MO with the chassis number and the pro-forma invoice of the car to be imported. Based on that, D*MO 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, D*MO 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.

D*MO also gave a valuation on a Mercedes Benz E250 CGi, to a private individual. The 2009 model, 1.8cc car was valued by D*MO 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.

D*MO’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 D*MO 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 D*MO, we attempted to contact Mr. Jayawardena, the chief valuer for D*MO, 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 D*MO. Other importers complain that D*MO 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 D*MO showed us details, like full details of the valuation process.” Customs have asked D*MO 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 D*MO.

Customs have also confirmed that they will be ‘looking into’ the transactions carried out by D*MO 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 D*MO to establish precisely the basis upon which D*MO provide valuations. Customs value for all goods will be the same on an “apples for apples” basis.

http://www.thesundayleader.lk/2010/09/05/g...ms-controversy/

[Devinda_Z]

Very interesting article.

much appreciated

[pradfred]

Excellent and informative.

Nice to have some knowlege gain on Autolanka again.

Thank you .

[Ripper]

Hmmm....interesting! and good to see media doing their bit too

hopefully the truth will come out and will not be swept under

[gunat]

Something smells here.

Granted, there should be benefit of the doubt when it comes to the small business going against the larger established player.

But from what i gather, the dismayed "parallel" distributor is the equivalent of what we call a 'grey' imports dealer? (Correct me if i'm wrong).

If this is the case, its logical that the cars will be used cars, primarily.

Either it was a case of crappy reporting, or just not (wanting to) get into the details.

The model of the car is not consistent...The E250CDi is a 2.1L diesel engine whereas the E250CGi is a 1.8L petrol engine. ...very different tax brackets!

Also, we're in the year of 2010, so logically the 2nd E250 car with YOM 2009 is an older model?

I may be biased as I always think its better to get a car from the approved agents especially when you pay so much money for a car...

Edited September 7, 2010 by gunat

[Supra_Natural]

Something smells here.

Granted, there should be benefit of the doubt when it comes to the small business going against the larger established player.

But from what i gather, the dismayed "parallel" distributor is the equivalent of what we call a 'grey' imports dealer? (Correct me if i'm wrong).

If this is the case, its logical that the cars will be used cars, primarily.

Either it was a case of crappy reporting, or just not (wanting to) get into the details.

The model of the car is not consistent...The E250CDi is a 2.1L diesel engine whereas the E250CGi is a 1.8L petrol engine. ...very different tax brackets!

Also, we're in the year of 2010, so logically the 2nd E250 car with YOM 2009 is an older model?

I may be biased as I always think its better to get a car from the approved agents especially when you pay so much money for a car...

Thats the question the article is asking dude... the CIF valuation given by the agents (which is what they use to calculate the tax) for a used petrol model (being imported by the other party) is considerably higher than the valuation given by them for the brand new diesel car (co-incidentally, imported by themselves).... So there definitely is some form of shenanigans going on here.

And speaking from experience, D*MO dont really care much about giving people a good deal, they are bottom line chasers through and through. (Before someone says "that's business", i'm not disagreeing with that fact)

Edited September 7, 2010 by Supra_Natural

[hakjay]

http://www.thesundayleader.lk/2010/09/05/g...ms-controversy/

Thanks for the information. I wonder if the other agents are doing the same thing. A_W is also importing used cars hence it will be advantages to them to value cars by other importes at a higher value.

[Watchman]

Something smells here.

Granted, there should be benefit of the doubt when it comes to the small business going against the larger established player.

But from what i gather, the dismayed "parallel" distributor is the equivalent of what we call a 'grey' imports dealer? (Correct me if i'm wrong).

If this is the case, its logical that the cars will be used cars, primarily.

Either it was a case of crappy reporting, or just not (wanting to) get into the details.

The model of the car is not consistent...The E250CDi is a 2.1L diesel engine whereas the E250CGi is a 1.8L petrol engine. ...very different tax brackets!

Also, we're in the year of 2010, so logically the 2nd E250 car with YOM 2009 is an older model?

I may be biased as I always think its better to get a car from the approved agents especially when you pay so much money for a car...

yeah, but the values given are pre-tax.... so doesnt matter what bracket it falls under...

But its not some big news where car agents dont like competition just like any other business. IIRC someone on the forum once said even T*y*t* lanka are hostile towards toyota vehicles that were not imported by them.

Edit:" S_N beat me to it

Edited September 7, 2010 by Dilesh

[gunat]

Thats the question the article is asking dude... the CIF valuation given by the agents (which is what they use to calculate the tax) for a used petrol model (being imported by the other party) is considerably higher than the valuation given by them for the brand new diesel car (co-incidentally, imported by themselves).... So there definitely is some form of shenanigans going on here.

And speaking from experience, D*MO dont really care much about giving people a good deal, they are bottom line chasers through and through. (Before someone says "that's business", i'm not disagreeing with that fact)

Yes, makes sense- if the model type cars are what are reported.

I know that some of the car 'specs/options' dial very much into the value of the car, regardless of YOM- would be interesting to know if this played a part...

As you've said, its all business and one trying the undercut the other...so lets see what comes of it.

[Ruslan]

yeah, but the values given are pre-tax.... so doesnt matter what bracket it falls under...

But its not some big news where car agents dont like competition just like any other business. IIRC someone on the forum once said even T*y*t* lanka are hostile towards toyota vehicles that were not imported by them.

Edit:" S_N beat me to it

True about Toyota Local Agents. as per my friend working there, he said they're not even stocking Spares for most of the JDM imports to discourage imports than their brand new lineup.

[hyacc]

True about Toyota Local Agents. as per my friend working there, he said they're not even stocking Spares for most of the JDM imports to discourage imports than their brand new lineup.

Can't we get toyotas which are not bought from them serviced/repaired at toyata agent?

[Sifaan]

True about Toyota Local Agents. as per my friend working there, he said they're not even stocking Spares for most of the JDM imports to discourage imports than their brand new lineup.

this could be because Toyota Lanka is intentionally not stocking the parts; but it also could be that Toyota from Japan has a policy on how parts are supplied. i.e. as authorized agents Toyota Lanka will be provided training, software, diagnostics tools, parts, etc. for the models authorised to Sri Lanka market; and likely preferential discounts and/credit periods that might not be on offer for parts not intended for this market.

[Watchman]

Can't we get toyotas which are not bought from them serviced/repaired at toyata agent?

They would service them i presume (at a good price of course)... but unless its a special car (say a supra or some really high end one) I personally think any decent service station can handle a regular service on the corollas, beltas, axios etc etc for 1/3 the cost (or lesser)...

[Watchman]

this could be because Toyota Lanka is intentionally not stocking the parts; but it also could be that Toyota from Japan has a policy on how parts are supplied. i.e. as authorized agents Toyota Lanka will be provided training, software, diagnostics tools, parts, etc. for the models authorised to Sri Lanka market; and likely preferential discounts and/credit periods that might not be on offer for parts not intended for this market.

There arent any 'unauthorized vehicles'.. just that te 'authorized AGENT' sells only a selected few that they choose.

Ialways thought that at least the major car makers should have multiple agents/dealers in the country to create a healthy compertition. Else once they have the monopoly, customer-satisfaction, delivery-on-time, reasonable-pricing all go right out the window. This D*MO case is a fine example. They're the only agent that can give a valuation of a merc, so they screw over anyone else who wants to import a merc without going through D*MO. AND A*W's award winning customer service is another fine example.

[Sifaan]

There arent any 'unauthorized vehicles'.. just that te 'authorized AGENT' sells only a selected few that they choose.

Ialways thought that at least the major car makers should have multiple agents/dealers in the country to create a healthy compertition. Else once they have the monopoly, customer-satisfaction, delivery-on-time, reasonable-pricing all go right out the window. This D*MO case is a fine example. They're the only agent that can give a valuation of a merc, so they screw over anyone else who wants to import a merc without going through D*MO. AND A*W's award winning customer service is another fine example.

actually manufacturers decide what models will be available in which markets; e.g. Toyota Lanka cannot sell you a car destined for JDM as a brand new car (but recon is possible like what A*W does). Maybe the authorized agent can influence the decision (showing market potential, etc) but the principal makes the call.

according to that distribution decision even the naming, trims, etc. can vary. e.g. the car sold as Sunny N16 here is actually from the Pulsar line

and of course components that are climate or otherwise region specific will also change... you wouldn't expect Toyota to stock a radio with Japanese FM frequencies, would you?

[Ruslan]

There arent any 'unauthorized vehicles'.. just that te 'authorized AGENT' sells only a selected few that they choose.

Ialways thought that at least the major car makers should have multiple agents/dealers in the country to create a healthy compertition. Else once they have the monopoly, customer-satisfaction, delivery-on-time, reasonable-pricing all go right out the window. This D*MO case is a fine example. They're the only agent that can give a valuation of a merc, so they screw over anyone else who wants to import a merc without going through D*MO. AND A*W's award winning customer service is another fine example.

Spot on. another example is WD 40. D*MO got the Dealership lately and price of a small can of WD 40 got doubled.

[Elvis_Pil]

I'd take anything published in the said paper with a pinch of salt.. their reporting was once good, but now its become very sensationalized- with language not befitting of a good newspaper..

[Devinda_Z]

True about Toyota Local Agents. as per my friend working there, he said they're not even stocking Spares for most of the JDM imports to discourage imports than their brand new lineup.

That's always been the case!

I've had services done at Toyota on a Carina AT192 done there but they have not carried any model specific parts - Ex : ECU components , etc

[Devinda_Z]

Can't we get toyotas which are not bought from them serviced/repaired at toyata agent?

You can get them repaired, just that they don't carry parts for JDM (domestic models) and say that you need to get them imported if required

[rangerover]

You can get them repaired, just that they don't carry parts for JDM (domestic models) and say that you need to get them imported if required

So do toyota lanka import brand new parts of JDM models directly from the main company, if they need to for a repair of a jdm car? if so why can't they import for stocking. I guess if thats the case, its purely to discourage JDM importation.

[Devinda_Z]

So do toyota lanka import brand new parts of JDM models directly from the main company, if they need to for a repair of a jdm car? if so why can't they import for stocking. I guess if thats the case, its purely to discourage JDM importation.

rarely

they fuss & quote funny money when asked to import