Sri Lanka is on track to meet its ambitious vehicle tax revenue target for 2025, though uncertainties remain. The government aims to collect between Rs. 300–350 billion in revenue from vehicle imports, driven by a resurgence in demand following the relaxation of import restrictions. However, officials and analysts caution that several factors, including fluctuating import volumes, rising vehicle costs, and economic instability, could influence final outcomes.
Fitch Solutions projects that pent-up demand for vehicles, previously suppressed by import bans, will bolster tax revenue in the coming year. The government has introduced steep import duties and surcharges on vehicles, anticipating these measures will contribute significantly to its fiscal goals. Despite this optimism, the high cost of imported vehicles may dampen demand, potentially jeopardizing revenue targets.
Recent figures indicate encouraging signs. Central Bank Governor Dr. Nandalal Weerasinghe revealed that Letters of Credit (LCs) worth USD 450 million have been opened for vehicle imports over the past five months. Approximately USD 200 million worth of vehicles have already arrived, with activity expected to grow steadily over the next three months.
Still, challenges persist. While initial import levels align with government forecasts, there is concern that volumes may not return to pre-ban highs. Economic pressures, including debt servicing obligations, could strain foreign currency reserves, affecting the country’s capacity to sustain import flows.
Additionally, the Committee on Public Finance (CoPF) has raised red flags about potential tax revenue losses stemming from inconsistencies in the taxation of used vehicle imports, particularly low-mileage vehicles. CoPF Chair MP Dr. Harsha de Silva questioned the transparency and fairness of VAT collections by Sri Lanka Customs.
Officials acknowledged variations based on vehicle usage and registration details. In response, the committee called for a detailed report on taxes collected from a sample of used vehicle imports, emphasizing the importance of efficient and equitable tax collection to meet revenue goals.
Meanwhile, the CoPF has approved revisions to the advance account limits for several ministries and departments under the 2024 Appropriation Act. These include budgetary adjustments for anti-corruption efforts, educational publications, and infrastructure needs such as prison industries and railway stores.
With mounting economic pressure and shifting trade dynamics, Sri Lanka’s ability to meet its 2025 vehicle tax target will depend on careful policy execution, transparent taxation, and efficient import management.
