By: Staff Writer
January 12, Colombo (LNW): Sri Lanka will lift its four-year ban on vehicle imports for personal use starting February 1, 2025. This decision aims to boost government revenue through import duties, normalize economic activity, and address public demand.
However, the process will be carefully managed to protect the country’s foreign exchange reserves. Importers are required to sell vehicles within three months or face a 3% penalty fee. Additionally, higher customs duties will apply to minimize the strain on foreign exchange reserves.
Central Bank Governor Nandalal Weerasinghe revealed that the decision followed an economic analysis conducted in mid-2024. He noted that the long-standing restriction on vehicle imports had created a need for new vehicles as the economy stabilizes.
The central bank recommends allowing vehicle upgrades selectively, ensuring minimal disruption to the existing market while imposing additional costs on those seeking newer models.
Weerasinghe also highlighted the impact of currency fluctuations and new taxes. With a significant depreciation of the exchange rate and the imposition of an 18% VAT, the value of older vehicles could drop sharply if unrestricted imports resume.
For example, a five-year-old vehicle worth 5 million rupees might lose its market value due to new imports. To avoid a market flood and maintain balance, upgrades should only be permitted with added costs to deter unnecessary large-scale imports.
Taxes and exchange rate changes have significantly increased vehicle import costs. Excise duties, VAT, and luxury taxes have all risen since 2020.
The total price for some vehicles could now exceed a 45% increase compared to previous rates. For instance, taxes for petrol vehicles with engine capacities under 1,000cc have surged from 2 million rupees to an estimated 3.3–3.5 million rupees.
Larger vehicles with engine capacities above 1,000cc may see tax hikes of up to 1.5 million rupees.
Changes in luxury tax regulations will also widen the scope of taxation. Previously applied only to vehicles with engine capacities above 2,000cc, the tax will now extend to vehicles exceeding 1,500cc. This move further raises costs for higher-end vehicles.
Additional import restrictions aim to prevent market saturation. Importers must sell their stock within three months or face steep fines ranging from 3% to 46% of the vehicle’s value.
Sri Lanka Customs will inspect 25% of imported vehicle stocks, and if over a quarter remains unsold, importers could face a three-year ban. Industry experts predict these restrictions will limit the volume of imports, even with the market reopening.
Delays in vehicle deliveries from foreign manufacturers are another challenge. Luxury vehicles, in particular, may require more than a year to arrive in Sri Lanka due to supply chain disruptions.
Given the high taxes, regulatory measures, and logistical delays, experts believe the vehicle import market will see only a gradual and limited recovery, preventing a rapid influx of new vehicles.
