- DIMO Deputy CEO: “No two cars are the same”
- DIMO imports cars for substantially less – Rs. 5 million difference
- Customs concerned over potential Rs. 210 million loss
By Faraz Shauketaly
Sensational new evidence has emerged that DIMO – “The Benz Company” – has indulged in a price fixing exercise that has cost Sri Lanka Customs revenue and forced other importers to pay very much higher duties. Diesel and Motor Engineering – DIMO – is shown to have lied last week not only to The Sunday Leader, but also to Sri Lanka Customs at a meeting.
Our story last week quoted both, the Chairman of DIMO, Ranjith Pandithage and his Deputy CEO, Gahanath Pandithage, stating categorically that they do not operate a “dual valuation policy” and stressed that DIMO only ever use the one set of values when giving official confirmation to Sri Lanka Customs as to the values of any particular Mercedes car. Both the Pandithages said that it was not relevant who imported the car – either DIMO themselves or any other importer – that they valued the car using the same procedure.
For a company that boasts of a board of directors that is akin to a ‘who’s who’ of Sri Lanka’s commercial elite, the home-made controversial practise is far bigger than an embarrassment, as it questions the very integrity of a company that has for long been fondly known as ‘The Benz Company’.
Evidence published within these pages proves that both the Pandithages have been — at best — economical with the truth.
In July 2010, DIMO were asked to provide a valuation for customs purposes of a 2010 Mercedes-Benz, E-200 CGI Blue Efficiency car – the car was being imported by another source who requested anonymity. As required by customs, DIMO provided a formal valuation, in their capacity as the official Mercedes Benz agent in Sri Lanka. DIMO valued the car at Euro 38,225. This was the FOB price, meaning that one had to add freight and insurance making the total CIF price of Euro 38,956. In local currency at an exchange rate of Rs. 145, that valued the car at Rs. 5,648,620 (Rs 5.6 million). Duty and other fiscal levies amounted to approximately Rs. 8,868,000 (Rs 8.8 million), making the on-the-road price in Sri Lanka, a cool Rs. 14 million.
In August 2010, DIMO imported a state-of-the-art 2010 model Mercedes Benz E200 CGI Blue Efficiency car, which had its unique chassis number WDD2120482A274532. DIMO declared its value for customs purposes (the so called and all important, ‘Customs Value’) as Euro 25,435. That translated at the time to Rs. 3, 666, 193 (Rs 3.66 Million). The customs imposed various fiscal levies totalling Rs. 5.47 million, making the total of that particular car approximately Rs. 9 million. DIMO advertised that same model of car in full page advertisements in the national press at Rs. 15.4 million.
Mercedes Benz in Germany, publishes price lists for all its models and in the case of the 2010, E200 CGI Blue Efficiency the list price is Euro 33,650. With the addition of optional extras, like automatic gear transmission, metallic paint and other variations, as well as freight and insurance, the price would be approximately Euro 38,950 by the time it arrived at Colombo port. The price published by Mercedes Benz is in effect the ‘retail price’ and the price that customs use as a base to calculate duties and other fiscal levies.
Apparent ‘dual valuation’ process
Immediately apparent is the ‘dual valuation’ given by DIMO – for an import by themselves, the value is Euro 25,435 whilst for the same model car imported by a third party, the valuation is Euro 38,950 – a whopping price differential of Euro 13,000 or nearly Rs. 1.8 million. The customs duty in the case of the third party importer is Rs. 8 million due to the higher valuation. The customs duty and fiscal levies paid by DIMO amounted to Rs. 5 million. There alone, the difference is Rs. 3 million – an advantage that DIMO has created for themselves, in spite of the near 30% margin that Daimler Benz gives its distributors on any car.
“No two cars are the same”, was Gahanath Pandithage’s response, also claiming that prices change. Sure, prices change, but there was no change in the Mercedes Benz price list for its new E class range between June and August 2010. And yes, optional extras does make one car different from the other but what does remain static is the basic price of the car with its basic features. In addition, each Mercedes Benz car produced, comes off the production line with a ‘Data Card’ – listing precisely what was factory fitted. It is in essence the ‘birth certificate’ of the car.
Pandithage may be trying to clutch at straws: the fact of the matter remains that DIMO have been found out – to have been using a different base value for its own imports and resorting to the Mercedes Benz list price for imports by others.
To create a commercial advantage is prudence – to dabble in the darkness of a de-facto monopoly is quite something else especially so if the state is deprived of what is manifestly its due. Ranjith Pandithage and his Deputy CEO Gahanath Pandithage both said that the valuations for customs purposes is transparent and that “anyone can check it on the internet.” Indeed. Nowhere however, can we check where on earth DIMO manages to value an E200 at Euro 25,435, except of course, if one took the list price (Euro 33,650) and deducted the 30% distributor margin.
In customs parlance however, the value used by DIMO is known as the ‘Transaction Value’ not the value for customs purposes. For a level playing field, DIMO would have had to convince customs to either use the distributor price (that is after deducting the 30% commission) or the list price. The use of the list price values would mean that customs would collect more duty from all imports – including from DIMO themselves. Bad news for purveyors of one of the world’s most sought after marques but great news for the Treasury.
New Imports raises urgency of proper valuation
DIMO are said to be in the process of importing approximately 73 other E200 cars, which they have advertised at Rs. 15.4 million. The difference in duty as shown in our example, is approximately Rs. 3 million on each car, making the potential loss to the Treasury Rs. 210 million. In light of this customs are keen to establish once and for all a standard mechanism to avoid any doubt as to how exactly a value for customs purposes is derived at.
The Additional Director General – Enforcement, A. Jazeel has initiated a process by which the Post Audit Clearance Branch (PCAB) of the Customs is looking into the past six months’ of imports by DIMO. Under the Customs Ordinance, severe penalties await those found guilty of willful under declaration of values. The penalties include forfeiture of the goods, penalties of up to three times the value of the goods as well as a fine of Rs. 100,000 at the election of the Director General of Customs.
The Board of Directors – DIMO
Ranjith Pandithage – Chairman, MD and CEO, A.G. Pandithage – Deputy CEO, A.N. Algama, Dr. H. Cabral, R. Seevaratnam, B.C.S.A.P Gooneratne, S.C. Algama, A.M. Pandithage, R.C. Weerawardane, Dr. U.P. Liyanage, T.G.H Peries