Sri Lanka’s vehicle taxation system is once again under scrutiny, but this time the controversy goes beyond import duties. The CMTA has warned that an apparently technical 15% vehicle depreciation rule is creating a parallel advantage in the import market, potentially depriving the Treasury of more than Rs.120 billion in 2026.
The controversy centres on the difference between a genuinely used vehicle and one that can be made to appear non-new through overseas registration. CMTA representatives argue that the existing Customs valuation framework allows vehicles that remain effectively new to qualify for a substantial valuation reduction, giving some importers a tax advantage over authorised distributors.
Under Customs Gazette No. 1971/10, issued on June 14, 2016, non-brand-new vehicles can be valued at 85% of the transaction value of an equivalent brand-new vehicle in the exporting country. According to CMTA Member Nalin Welgama, the mechanism becomes particularly lucrative when vehicles are briefly registered abroad and then shipped to Sri Lanka.
His example involving a £100,000 vehicle highlights the concern. Once exported from the United Kingdom, local VAT is removed from the transaction. The vehicle can then qualify for the 15% depreciation allowance, bringing the Customs valuation down to £85,000. The result, according to the CMTA, is that taxes can effectively be collected on only part of the vehicle’s underlying value.
That distinction has major competitive consequences.
Authorised distributors claim they carry significant fixed costs—including technical training, workshops, spare-parts networks, showrooms, warranties and after-sales services—while alternative importers may operate with far lower overheads. DIMO Group CEO Gananath Pandithage argued that the resulting tax difference may therefore become an additional importer margin rather than a consumer saving.
The financial examples presented by the CMTA strengthen the case for examination. The Association estimated around Rs.40 billion in leakage during 2025, calling that calculation conservative because it covered only selected passenger-car segments. The January-to-July 2026 figure had already reached approximately Rs.54 billion.
Former CMTA Chairman Charaka Perera placed the problem within a larger history of unstable vehicle taxation. Over the past decade, Sri Lanka has moved through changing hybrid and EV duties, engine-capacity taxation, luxury taxes, import suspensions and subsequent reopening, additional levies and changes to Customs Duty and SSCL. Vehicle financing rules have also shifted repeatedly, further complicating market planning.
The consequence is a policy environment in which businesses cannot easily determine the cost structure that will apply over the life of an investment. For consumers, meanwhile, the promised benefit of lower vehicle prices may not necessarily materialise.
The CMTA therefore insists that its demand is not for preferential treatment. It wants one Customs valuation methodology for all market participants. Should immediate abolition prove difficult, it proposes an interim age-based model, covering categories such as zero-to-six months and six-to-12 months, with depreciation capped at about 10%.
Budget 2027 now offers an opportunity to close what the industry describes as a costly loophole. The larger policy test is whether Sri Lanka will continue adjusting tax rates around an unstable system or finally establish a transparent vehicle valuation regime that protects revenue, competition and consumer interests alike.
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