The Sri Lankan government has announced new tax rates for vehicle imports, resuming after a five-year suspension. According to a special gazette notification signed by President Anura Kumara Dissanayake in his capacity as Minister of Finance and Economic Development, the new tax structure is effective immediately.
Steep Increase in Overall Taxes
Prasad Manage, President of the Vehicle Importers Association of Sri Lanka, highlighted that the overall tax rate on imported vehicles, including the newly introduced percentages and existing levies, could reach up to 500%. For certain vehicle categories, the total tax could escalate further to 600%.
Under the revised tax system, vehicles less than ten years old will be subject to taxes ranging from 200% to 300%, depending on engine capacity and motor power. The primary components of the tax structure include:
- Special Import Tax
- Luxury Tax
- Tax Based on CIF (Cost, Insurance, and Freight) Value
- 18% VAT
Significant Price Hikes Expected
The new tax system is expected to result in significant price increases for imported vehicles. For example:
- 660cc Wagons: Taxes increase from LKR 1.6 million to LKR 1.85 million.
- 1,000cc Vitz: Taxes rise from LKR 2 million to LKR 2.45 million.
- 1,500cc Toyota Axio, Corolla, and Aqua: Taxes grow from LKR 5.7 million to LKR 6.6 million.
Additionally, vehicles with engine capacities exceeding 1,500cc, previously exempt from the luxury tax, are now subject to it under the new regulations. This change could lead to price increases of up to 45% for certain models compared to 2020.
Taxes on Hybrid and Electric Vehicles
The revised structure also introduces specific tax rates for hybrid and electric vehicles:
- Vehicles older than 3.5 years will incur a 200% tax.
- Vehicles newer than 3.5 years will face a 300% tax.
These rates vary based on motor type and battery capacity.
Vehicle imports were halted in 2020 due to severe economic challenges, forcing authorities to restrict non-essential imports. However, with the implementation of the IMF’s extended credit facility program and improvements in foreign reserves, the economy has stabilized, enabling the Central Bank to approve the resumption of vehicle imports.
Following a Cabinet decision on September 12, 2024, imports of motor vehicles and other non-motorized items under 304 harmonized system (HS) codes were approved under a three-phase plan.
The Vehicle Importers Association estimates that around 50,000 vehicles could be imported this year. Currently, prices in the local used vehicle market remain high due to restricted supply. The resumption of imports is expected to normalize prices gradually.
However, rising global vehicle costs could push import prices even higher. The association emphasizes that only a reduction in tax rates by the government could lead to lower prices.
The association advises prospective buyers to remain patient and wait until imported vehicles arrive in the market, as prices are expected to stabilize over time.