Govt. lifts vehicle import ban
View(s):Sri Lanka will end its four-year ban on car and vehicle imports with effect from February 1, allowing motor traders to once again import vehicles.
This decision of vehicle import ban follows the country’s economic crisis, during which the suspension was implemented to preserve foreign reserves.
There will be four types of taxes imposed: 18 per cent Value Added Tax, 20 per cent Customs Duty, Excise Duty, and Luxury Tax.
Furthermore, the abolition of the 2018 regulation that exempted Customs Duty from the Excise Duty computation has increased the Excise Duty by approximately 6 per cent. The revised tax structure has been determined with a formula already approved by Cabinet.
The government can bring in a phase-by-phase importation of vehicles to reduce the dent on foreign reserves. Even as the resumption of imports is allowed, experts said that vehicle prices may increase moderately due to the new tax structure. While the move brings certain economic benefits, it also raises several challenges.
On the positive side, allowing vehicle imports generates substantial revenue through taxes, including an estimated Rs.200 billion to Rs.300 billion annual collection from import duties, VAT, and other taxes.
However, there are serious setbacks. Imports result in tremendous foreign exchange outflow, as high as US$800 million annually that increases the trade deficit and depletes the foreign reserves.
Although vehicle imports increase the tax revenue, they also raise foreign currency outflows, adding to the country’s foreign exchange crisis.
Prasad Manage, President of the Vehicle Importers’ Association of Sri Lanka, said that registered vehicle importers are awaiting the government’s clarification on the new tax structures.
Murtaza Jafferjee, Chairman of the Advocata Institute, suggested a temporary surcharge on vehicle imports to manage the initial demand shock.
He felt that Sri Lanka’s inflexible economic policies had leaned toward imports at the cost of local production, which hurt the country’s long-term economic prospects.
Senior Economic Advisor to the President Duminda Hulangamuwa said the motive for reopening vehicle imports is to raise a Rs.300 billion revenue for the government and also due to the cultural value of vehicle purchases in Sri Lanka.
The two eminent experts were speaking at an HNB Leasing forum titled “Sri Lanka Motor Industry: Outlook for 2025″.
However, they also criticised the current unit-based tax system applicable for vehicles according to their cylinder capacity and added that it brought inefficiencies into being and stimulated under-invoicing, specifically of electric and internal combustion engine vehicles.
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