When the NPP government moved to lift the vehicle import ban early in 2025, it bet heavily on recapturing lost tax revenues. But the timing could not be worse: Sri Lanka is scrambling to shore up foreign exchange inflows and rebuild its dwindling foreign reserves. The question now: did the state trade away scarce dollars just to boost rupee-tax collections and at what longer-term cost?
As of 16 September, Sri Lankan commercial banks had opened about USD 1,570 million in Letters of Credit (LCs) for vehicle imports. According to Finance Ministry disclosures before the Committee on Public Finance, this is the magnitude of foreign exchange commitment tied to the import liberalisation. (User’s assertion)
Official testimony further indicates the government expects tax revenue from vehicle imports to reach Rs. 460 billion in 2025, but ministry officials now privately suggest that figure may exceed Rs. 700 billion by year end.
On paper, that sounds like a revenue success. But the caveat is stark: opening LCs for nearly USD 1.57 billion implicitly drains the dollar reserves money that could otherwise shore up the external buffer or service critical imports.
The finance ministry’s claim that rupee collections offset a “loss” of dollars is disingenuous: the government has effectively swapped liquidity in foreign currency for rupee revenue a zero-sum game at a perilous moment.
Public data already hints at the pressure. From January to May 2025, vehicle imports accounted for USD 312 million out of total merchandise imports of USD 1,507 million.
Meanwhile, Central Bank data shows that Sri Lanka is running a widening trade deficit, even as remittances and services exports attempt to cushion the external position.
Blooming import demand is already drawing alarm: Treasury sources indicate that LCs worth USD 742 million had been opened at one point during the year.
Additionally, independent commentary warns of trade-off risks from rising vehicle import pressures.
Central Bank projections also point to total vehicle import flows climbing to about USD 1.5 billion by end-2025.
Contrast that with last year’s constraints: during the import restrictions, the tax intake from vehicle imports dried up, but the FX outflow was curbed. The state accepted shortfalls in revenue in exchange for retaining precious dollars. Now it has reversed that trade.
What is glaringly missing from public records is a transparent cost–benefit breakdown:
How many dollars were actually drained from reserves to satisfy these LCs?
What is the net foreign reserve position today, compared with the same point last year?
How much incremental rupee revenue is “net gain” versus what would already have been collected via other taxes or suppressed domestic demand?
The government’s posture that rupee tax gains outweigh the “lost” dollars — masks a precarious assumption: that future foreign inflows (via exports, remittances, tourism) will more than replenish the reserves. This is a gamble. For now, Sri Lanka is running with a thinning external cushion.
The NPP’s vehicle import liberalisation may have succeeded in swelling coffers in rupee terms, but it has also exposed the country to foreign exchange stress at a moment of external fragility.
An independent forensic inquiry is needed to compare month-by-month FX reserve movements, vehicle import outflows, and incremental tax gains including cross-checks against prior year performance to assess whether the tradeoff was economically justified or merely a fiscal sleight-of-hand at the expense of external stability.
