Questions are mounting over whether Sri Lanka’s vehicle import tax structure is inadvertently rewarding tax avoidance at a time when the Government is striving to strengthen fiscal discipline and increase public revenue.
At the center of the debate is a 15% depreciation concession granted to imported used vehicles, a policy that the Ceylon Motor Traders’ Association (CMTA) claims is costing the Treasury billions of rupees while offering little benefit to consumers or the broader economy.
The Association has urged authorities to abolish the concession immediately, warning that its continued existence could result in another year of substantial revenue losses in 2026. The CMTA estimates that the Government forfeited approximately Rs. 40 billion during 2025 due to the depreciation allowance.
The concern stems from the way import duties are currently calculated. Used vehicles qualify for a 15% reduction in their declared CIF value before taxes are imposed, effectively lowering the total duty payable by importers.
While the policy was originally designed to account for the reduced value of second-hand vehicles, industry representatives argue that the definition of “used” has become increasingly blurred. A significant number of imported vehicles categorized as used are reportedly only a few months old and have travelled minimal distances.
These near-new vehicles often command prices close to those of factory-fresh models, yet still receive the full depreciation benefit. Critics argue that this disconnect between actual vehicle value and tax treatment has transformed what was once a practical adjustment into a costly loophole.
The issue has broader implications for Government finances. Sri Lanka remains under pressure to improve revenue collection after years of economic turbulence and debt-related challenges. Every rupee lost through inefficient tax structures reduces resources available for infrastructure, healthcare, education, and other public services.
Economists note that tax concessions are generally justified only when they stimulate economic activity, support strategic industries, or deliver measurable public benefits. The CMTA maintains that the current depreciation allowance fails all three tests.
The Association also argues that the concession undermines transparency in the vehicle import sector. By creating a significant financial incentive linked to vehicle classification, it increases the risk of manipulation and complicates regulatory oversight.
Repeated appeals have been made through budget submissions presented via the Ceylon Chamber of Commerce, but policymakers have yet to signal whether reforms are under consideration.
Industry observers believe the Government now faces a difficult balancing act. Removing the concession could increase revenue and address concerns about fairness, but it may also lead to higher vehicle prices for some importers and consumers. Retaining it, however, risks continued criticism over lost tax income and unequal market conditions.
As policymakers prepare future fiscal reforms, the debate over used vehicle taxation is likely to become a key test of the Government’s commitment to closing loopholes, improving accountability, and maximizing revenue collection in a challenging economic environment.