Sri Lanka 🇱🇰 is set to lift its vehicle import ban in stages, with personal vehicle imports to be lifted by February 2025. This decision, while potentially stimulating the auto market, raises significant questions about its impact on the government revenue.
Sri Lanka imposed a vehicle import ban in response to the economic challenges exacerbated by the COVID-19 pandemic. The restrictions began in 2020 as part of efforts to preserve dwindling foreign exchange reserves, which were necessary for essential imports like food and medicine.
After 4 years the vehicle import ban is set to be lifted in a phased manner starting October 1, 2024, with the complete removal of restrictions expected by February 2025. This gradual lifting will allow for the importation of public transport vehicles first, followed by commercial vehicles in December 2024, and finally private vehicles in February 2025.
This move by the current government could lead to a significant outflow of foreign exchange, without much revenue for the government to show for it, largely due to the existence of duty-free vehicle permits. These permits, granted to public servants and military personnel, allow vehicles to be imported without the usual full tax burdens. MP Wajira Abeywardana has claimed that there are approximately 75,000* unused permits out there issued over the last five years.
If this figure is accurate, the government could potentially forgo up to Rs. 270 billion in tax revenue due to these concessions—equivalent to 18% of the 2024 Customs annual revenue target of Rs. 1,500 billion. These permits, typically issued to government employees and military personnel, offer a tax concession of Rs. 3.6 million per vehicle.
According to RMV data, Sri Lanka registered over 68,000 new cars and dual-purpose vehicles annually in the three years leading up to the import ban, a figure that likely reflects the volume of vehicle imports during that period. Once the ban is lifted, a similar or even higher number of registrations is expected. If MP Vajira Abeywardena’s claim of 75,000 unused duty-free permits is accurate, it would represent more than a full year's worth of vehicle imports waiting to enter the market under Rs. 3.6 million tax concession permits.
This influx of new vehicles, combined with older vehicles being sold on the market, could significantly boost supply and drive down prices—especially in the Rs. 6 million to Rs. 12 million range.
However, Abeywardena’s figure may be an overestimate. Previous reports indicate that the finance ministry typically issues 5,000 duty-free permits annually. Therefore, a more realistic estimate of unused permits is likely around 20,000-25,000. Even with this lower figure, the impact on vehicle prices is expected to be substantial. On the revenue side, these 25,000 permits could still reduce tax revenue by Rs. 90 billion, or roughly 6% of the annual Customs revenue target.
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