No Reduction in Vehicle Taxes This Year: Duminda Hulangamuwa, economic advisor to President Anura Kumara Dissanayake, confirmed that vehicle taxes will not be reduced in 2025. Despite public expectations, the government has stated that any reduction will not happen within the current year. Sri Lanka’s vehicle ownership rate remains among the lowest in South Asia, with only 5% of households owning a private car, highlighting the impact of high import taxes.
High Taxes on Vehicles as a Revenue Measure:
Sri Lanka continues to impose exceptionally high taxes on car imports. Import duties can be as high as 300% for larger vehicles. Motorcycles face import duties ranging from 100% to 200%, while three-wheelers are taxed at around 250%. This system is part of the government’s broader strategy to generate revenue, contributing LKR 300 billion in 2025 alone from vehicle-related taxes.
Tax Hikes to Preserve Foreign Reserves:
The increase in vehicle taxes in 2025 is aimed at helping conserve the country’s foreign reserves. With Sri Lanka facing a forex shortage and foreign reserves dwindling to around USD 1.7 billion in early 2025, the government sees higher import taxes on vehicles as a way to limit the outflow of foreign currency. This measure reflects a broader trend of rising foreign exchange controls.
Economic Controls, Including Exchange Controls:
Sri Lanka has placed multiple economic controls, including strict exchange controls, which limit access to foreign currencies. The country’s foreign currency reserves fell drastically in 2022, hitting a low of USD 1.9 billion and resulting in limited availability of foreign exchange for imports, including vehicles. These controls are a response to the country’s ongoing economic crisis, worsened by the central bank’s policy of printing money to reduce interest rates.
Import Duty on Cars and Potential Impact on Local Assembly Sector:
In 2025, an additional import duty on cars was introduced, with critics arguing it could lead to inefficiencies and potential “leakages” in the local assembly sector. With import duties pushing the price of a mid-range car like a Toyota Corolla to LKR 12 million, local assemblers may benefit, but this could increase car prices in Sri Lanka even further, with a car like the Honda Civic (international price LKR 6 million) costing up to LKR 15 million after taxes. Critics fear this might not result in affordable alternatives for the average consumer.
These points, bolstered by relevant statistics, highlight the ongoing challenges of vehicle imports in Sri Lanka, where high taxes, forex controls, and economic policies continue to restrict access to personal transportation for the majority of the population.
