- New taxes, regulations to limit volume of imports
- Car imports permitted after five years
- Measures to protect forex reserves
The Government yesterday officially lifted the nearly five-year ban on vehicle imports through an Extraordinary Gazette issued by President Anura Kumara Dissanayake in his capacity as Minister of Finance, Planning, and Economic Development. This follows an announcement by the Government some time back that imports of personal vehicles would resume by February 2025.
The Imports and Exports (Control) Regulations No. 02 of 2025, effective from February 1, 2025, will now permit the importation of public passenger transport vehicles, goods transport vehicles, personal vehicles, and non-motorised vehicles under strict conditions. The decision marks the end of an import ban imposed in 2020 amid the Covid-19 pandemic and a severe foreign exchange crisis that followed. The Government has justified the move as a necessary step toward economic normalisation, balancing the need to revive key sectors such as transportation and logistics while ensuring the protection of foreign reserves. Vehicle imports usually cost around US$ 1.5 billion per year.
Despite the lifting of the ban, the new regulations have also introduced stringent conditions to control the volume of imports and prevent excessive stockpiling by “car sales”.
Registered importers with the Department of Motor Traffic (DMT) or State institutions will be allowed to import vehicles based on specified quotas, while individuals and unregistered importers will only be permitted to import one vehicle within a 12-month period.
All imported vehicles must be registered within 90 days of Customs clearance, either in a customer’s name or in the company’s name and failure to comply will result in a monthly late fee of three percent of the Cost-Insurance-Freight (CIF) value, with a maximum penalty of 45 percent of the CIF value. The regulations also prohibit the use of duty-free import permits, and any vehicles imported in violation of these rules must be re-exported within 90 days. However, certain tax and duty concessions are available for agricultural vehicles, ambulances and vehicles for the disabled.
To curb excessive demand and generate revenue for the State, the Government has also imposed higher import duties and taxes. Effective January 28, 2025, a Customs Import Duty (CID) of 20 percent on the CIF value was introduced, followed by a 50 percent surcharge on this duty from February 1, 2025, bringing the total Customs Import Duty to 30 percent. The surcharge will initially be levied for one year. In addition, a new luxury tax has been implemented, ranging from Rs. 5 to 6 million per vehicle (depending on the engine capacity), with the higher threshold aimed at exempting lower-cost vehicles.
Personal vehicles will be subject to taxes and duties based on the engine capacity for Internal Combustion Engine (ICE) vehicles and the motor (kilowatt) capacity for Battery Electric Vehicles (BEVs). Value Added Tax (VAT) will also be applicable to all retail sales of cars. The Government has also taken measures to protect and encourage the local assembly and manufacture of vehicles via Completely Knocked Down (CKD) kits and local value addition in the face of imports of Completely Built Units (CBUs).
The decision to ease import restrictions comes in the context of Sri Lanka’s ongoing economic recovery following years of financial instability. The initial ban, imposed in 2020, was part of a broader effort to control foreign currency outflows after the Central Bank of Sri Lanka printed money to address an economic downturn. The restriction was later extended as Sri Lanka grappled with a severe foreign exchange crisis in 2022.
Spokespersons for the Ceylon Motor Traders’ Association (CMTA, which represents accredited sole agents of car brands) and the Vehicle Importers’ Association of Sri Lanka (VIAL, which represents the parallel importers) said they were awaiting a fuller picture of the new tax and duty structure, but customer orders would be accepted soon. A brand new ICE or BEV car, if ordered now, would still take a few months to arrive, allowing the time needed for manufacture and shipping.