By: Staff Writer
October 20, Colombo (LNW): Sri Lanka recorded a sharp uptick in vehicle registrations in September 2025, with total units reaching 48,708, a 27 % increase from August.
Cars rose to 4,268 from 2,329, while SUVs and crossovers surged to 5,813 from 3,800. Motorcycles alone accounted for 32,626 registrations, up from 27,585, and three-wheelers jumped to 3,015 from 2,497.
This sharp expansion is being driven by the lifting of import curbs and a pent-up demand for personal mobility. The government is benefiting from high taxes on vehicle imports, which generate significant rupee tax revenue.
But that benefit comes with a major trade-off: each imported vehicle draws down foreign currency reserves, putting pressure on the external sector and the Sri Lankan rupee.
Analysts estimate that only about one-third of the retail price of imported cars and crossovers impacts the foreign exchange market because duties and taxes are paid in rupees but the rest still translates into dollars leaving the country.
With cars and crossovers in September reaching pre-crisis levels totaling 10,081 units up from 6,137 in August the scale of dollar outflow is beginning to rival other large import categories.
If an average import cost per car/SUV is US$20,000 (a conservative estimate given higher-end import vehicles), then 10,081 units translate into roughly US$201 million and potentially more dollars flowing out in one month.
Over a nine-month period, assuming similar pace, this could add up to US$1.6–2 billion, magnifying the risk to the country’s balance of payments.
On the revenue side, heavy taxes mean the state pockets large sums in rupees upfront, but the revenue cannot fully offset the foreign exchange impact. With external reserves tight and the rupee facing depreciation pressures partly driven by imported goods that draw on scarce dollars — the vehicle boom could undermine macro stability even as it boosts short-term revenue.
The key challenge for policymakers is balancing the immediate revenue wind-fall from vehicle import taxes against long-term currency stability and external sector resilience. Unless matched with export growth or foreign-exchange-earning measures, the surge in imports risks turning a Treasury win into a broader economic vulnerability.
