Sri Lanka’s long-anticipated decision to lift its five-year ban on vehicle imports has been met with mixed reactions, as industry stakeholders voice concerns over affordability, taxation policies, and broader economic implications.
According to Daily FT, the Vehicle Importers’ Association Lanka (VIAL) and the Vehicle Importers Association of Sri Lanka (VIASL) have both welcomed the move but highlighted key challenges that could impact the market.
Affordability Challenges and Policy Adjustments
VIAL President Indika Sampath Merenchige, quoted in The Island, stressed the need for policy revisions to prevent excessive price hikes.
“The newly introduced regulations could make vehicle ownership prohibitively expensive for ordinary citizens,” he said, pointing out that restricting imports to vehicles no older than three years has contributed to higher costs. Under previous regulations, five-to-seven-year-old vehicles were permitted, offering more affordable options.
Merenchige further told Daily FT that an average citizen would now struggle to purchase a vehicle for less than Rs. 10 million. In contrast, maintaining the previous five-year limit could have kept prices between Rs. 6 million and Rs. 6.5 million.
He also highlighted that high demand in Japanese used car auctions is already pushing up bid prices. With the restrictive import policy, the foreign exchange outflow is expected to rise. As an alternative, Merenchige proposed a $1.2 billion cap on total vehicle imports while allowing a five-year age limit, which he believes would strike a balance between affordability and foreign exchange control while increasing state revenue.
Additionally, he flagged concerns over HS code discrepancies for vans and urged the government to exempt them from the luxury tax.
Import Timelines and Tax Complexity
VIASL President Prasad Manage, speaking to Daily FT, noted that the first batch of imported cars is expected by the end of the month, with cabs arriving in early March.
Manage also acknowledged that raising the luxury tax threshold from Rs. 3.5 million to Rs. 5 million for petrol and diesel jeeps and cars—and Rs. 5.5 million for hybrids—was a step in the right direction. However, he pointed out that the tax structure had grown increasingly complex.
According to The Island, the number of tax categories has now increased to five, adding further complications for importers. “Previously, vehicle imports were subject to Excise Duty, Customs Duty, VAT, and Luxury Tax. Now, in addition to these four, a 50% surcharge on import duties—applicable for one year—has been introduced, further escalating costs,” he explained.
He also noted that the revised taxation model means vehicle prices will vary significantly based on engine capacity, with larger engines facing steeper duties.
Shift to Date of Manufacture Raises Concerns
Manage raised another key issue reported by Daily FT: the government’s abrupt shift from using the date of registration to the date of manufacture when assessing vehicle age.
“If the date of manufacture cannot be determined, the vehicle will be classified as two years old, potentially causing major revenue losses for the government,” he said, adding that importers are urging policymakers to rectify this issue in the upcoming Budget.
Market Outlook and Government Stance
Despite these challenges, Manage predicted a decline in used vehicle prices as new imports enter the market. However, with total imports capped at $1 billion, he estimated that approximately 12,000 vehicles will be imported in the first month—well below the record volumes seen in 2018.
Meanwhile, Daily FT noted that importers had lobbied for the reinstatement of vehicle permits, but the government prioritised revenue generation and foreign exchange management instead.
Addressing a weekend rally, President Anura Kumara Dissanayake defended the government’s cautious approach, warning that pent-up demand for vehicles could trigger another foreign exchange crisis. He emphasised the need for strict forex management as Sri Lanka navigates its economic recovery.
