By: Staff Writer
June 30, Colombo (LNW): Sri Lanka’s decision to lift a five-year ban on vehicle imports has revived the automobile trade, generating much-needed government revenue. However, the surge in vehicle imports—particularly used vehicles—has exposed significant weaknesses in tax collection and customs valuation procedures, triggering serious concerns over potential revenue losses.
The Committee on Public Finance (CoPF) has flagged critical discrepancies in the valuation of used and unregistered vehicle imports. The main concern centers around the apparent inconsistency in applying Value Added Tax (VAT) and excise duties, especially for vehicles with minimal mileage or those only a few days old. These discrepancies, according to CoPF, could result in billions of rupees in lost government revenue annually.
At a recent CoPF session, Chairperson Dr. Harsha de Silva questioned why Sri Lanka Customs continues to depreciate vehicle values by 15%, even for imports with less than 50 kilometers of mileage or as new as five days old. Customs officials explained that they follow a 2016 Gazette that has not been updated, with no fresh guidance issued on valuation timelines or mileage brackets.
This outdated system, the CoPF warned, may be allowing revenue leakage on a large scale. Customs Additional Director General Seevali Arukgoda revealed that about 200–300 vehicles are processed daily, and since the lifting of the import ban, around 16,000 vehicles have been cleared. Yet a random data check revealed that the government may have lost up to Rs. 250 billion in just three days due to improper valuations—translating to a potential annual loss exceeding Rs. 36 billion.
Importers and industry representatives voiced their grievances as well. Sampath Merenchige, President of the Vehicle Importers Association of Lanka (VIAL), said that three-year-old vehicles imported from Japan are often overvalued compared to their actual market price. Meanwhile, Prasad Manage of VIASL noted that used vehicle importers do not receive proper depreciation allowances, even on three-year-old vehicles, unlike brand-new vehicles which get favorable valuation treatment.
Further inconsistencies were cited in declarations of vehicle power. For instance, the same model BYD Sealion was declared with different kilowatt power ratings depending on whether it was imported by a private party or directly by the manufacturer—raising suspicions of manipulation and lack of standardization.
Adding to importers’ woes is the recent decision to double electric vehicle (EV) excise duties from 15% to 30%, alongside a 50% surcharge on customs duties, which has led to a sharp increase in vehicle prices—both new and used. While this is expected to boost government revenue, consumer affordability has taken a hit.
The CoPF urged Sri Lanka Customs and the Department of Motor Traffic to standardize and clarify vehicle valuation and registration processes. Customs has been asked to modernize its depreciation guidelines and implement robust mechanisms to prevent undervaluation and tax evasion.
Dr. de Silva emphasized that transparency, accountability, and urgency in reforming the valuation process are vital to closing loopholes and safeguarding public funds. If left unchecked, these gaps could continue to deprive the government of billions in revenue at a time when fiscal discipline is crucial.
