Beyond CIF reductions and depreciation allowances, another practice within Sri Lanka’s vehicle market is drawing intensified scrutiny: VAT-free trade-ins structured to obscure transaction values.
The Ceylon Motor Traders’ Association warns that certain vehicle-for-vehicle or vehicle-for-asset exchanges particularly when tied to unregistered imports are being used to bypass standard Value Added Tax (VAT) mechanisms.
In theory, trade-ins are legitimate commercial arrangements. In practice, the CMTA alleges that some transactions are structured in ways that conceal the true consideration paid for imported vehicles. By masking the effective sale price, invoice values can be reduced lowering the base upon which import duties and VAT are calculated.
The implications are twofold. First, State revenue suffers. Import duties and VAT constitute major fiscal inflows, especially in a post-crisis economy seeking to rebuild external buffers and sustain fiscal surpluses. Second, market integrity weakens.
When vehicles enter the market with undervalued invoices, price benchmarks across digital platforms and dealership listings begin to reflect these suppressed figures. This can distort competition and disadvantage operators adhering strictly to legal and transparent pricing frameworks.
Compounding the problem is what industry sources describe as fragmented oversight. Valuation assessments may vary between import channels, and enforcement actions are perceived as inconsistent. Without structured, standardised verification processes, discrepancies can persist.
The CMTA argues that closing these gaps requires a multipronged approach: eliminating arbitrary depreciation allowances, introducing stricter monitoring of total funding mechanisms used for imports, and tightening oversight of VAT-free trade-in arrangements.
Consumer safety also enters the equation. The Association maintains that lawful, regulated channels ensure accountability, warranty support, and traceable documentation. When segments of the market operate outside consistent regulatory enforcement, both safety standards and after-sales commitments may weaken.
Notably, CMTA-member imports operate within auditable systems, generating documented foreign currency flows and predictable tax contributions. The Association says this model demonstrates that transparency and commercial viability are not mutually exclusive.
The broader question for policymakers is whether the current framework inadvertently incentivises regulatory arbitrage. If classification technicalities and loosely monitored trade-ins consistently reduce taxable value, the cumulative revenue impact could be substantial.
Recalibrating the system would demand political will and administrative capacity. Yet proponents argue that ensuring uniform standards across all market participants would restore confidence, protect compliant businesses, and secure tax revenue without constraining legitimate trade.
The post Zero-Mileage, Used Label: A Tax Loophole? appeared first on LNW Lanka News Web.
