By: Staff Writer
November 01, Colombo (LNW): Sri Lanka’s vehicle import taxation system is facing renewed scrutiny following a warning by the Ceylon Motor Traders’ Association (CMTA) that a controversial 15% depreciation concession granted to used vehicle imports could have cost the Treasury approximately Rs. 120 billion by September 2026, raising serious questions about the effectiveness of Government revenue collection and the fairness of the country’s automotive tax regime.
The association, affiliated with the Ceylon Chamber of Commerce, has urged the Government to abolish the concession in the 2027 Budget, arguing that its continuation has created an unjustified tax advantage for certain categories of imported vehicles while depriving the State of substantial revenue at a time when public finances remain under considerable pressure.
According to the CMTA, the estimated revenue loss increased from approximately Rs. 40 billion in 2025 to Rs. 120 billion by September 2026. If these estimates are substantiated, the scale of the potential revenue leakage raises concerns about whether the existing import duty framework adequately protects public revenue.
Under the present mechanism, used vehicles receive a 15% depreciation deduction on their Cost, Insurance and Freight (CIF) value when calculating import duties. However, the association argues that a significant number of vehicles entering the country through the used vehicle market are virtually zero-mileage units, with CIF values comparable to those of brand-new vehicles.
Consequently, the blanket depreciation concession can reduce the taxable value of vehicles without necessarily reflecting a corresponding difference in their actual market value or usage.
The resulting disparity creates questions about the rationale for granting preferential tax treatment to vehicles that may have experienced little or no meaningful depreciation. It also raises concerns about whether the existing mechanism has created opportunities for importers to maximise tax advantages through the classification and valuation of vehicles.
The controversy comes at a particularly sensitive time for the Treasury. The Government is attempting to strengthen tax revenue, maintain fiscal discipline under the International Monetary Fund programme and generate sufficient resources to finance public investment, welfare programmes and essential services.
The CMTA maintains that abolishing the concession would help establish a common taxation framework for new and used vehicle imports, reducing market distortions and improving predictability for businesses and consumers.
The association has also called for stronger regulatory supervision to prevent the exploitation of loopholes and practices that undermine the intended application of import duties.
Interestingly, the CMTA says it first proposed a structured depreciation mechanism in 2013 and has continued presenting proposals to successive governments. Its alternative framework would calculate depreciation according to vehicle age rather than applying a uniform 15% reduction, with depreciation capped at a maximum of 10%.
Such an arrangement, the association argues, would provide a more transparent basis for determining taxable values if the Government decides against completely abolishing depreciation.
However, the proposed reform also requires careful examination of its impact on vehicle affordability. Used vehicles serve consumers who cannot necessarily afford brand-new imports, while new vehicle buyers’ benefit from manufacturer warranties and after-sales support.
The Government must therefore balance revenue protection with consumer affordability and competition.
With the 2027 Budget approaching, the central question is whether policymakers will address a revenue leakage mechanism that the industry claims has remained unresolved for more than a decade.
The Treasury should independently examine the CMTA’s Rs. 120 billion estimate, disclose the actual fiscal implications and establish a transparent vehicle valuation system. Without such scrutiny, the country risks continuing a taxation arrangement that could undermine both public revenue and confidence in the automotive market.
