Sri Lanka’s long-awaited reopening of vehicle imports has delivered a massive windfall to State coffers, with customs and excise collections surging during the first half of 2025. The Ministry of Finance’s Mid-Year Fiscal Position Report 2025 reveals that the Government earned Rs. 2.15 trillion in total tax revenue, marking a 25.9% year-on-year increase, largely driven by the sharp rise in motor vehicle imports and related duties.
According to the report, vehicle imports skyrocketed by 361%, reaching 126,829 units between January and June 2025, following the complete relaxation of import restrictions that had been in place since 2020. As a result, excise duty collections on motor vehicles jumped by 335.6%, contributing nearly Rs. 100 billion in additional revenue. The resumption of imports also boosted Customs Import Duty, which nearly doubled by 92.7% to Rs. 94 billion during the same period.
The Treasury noted that the import surge coincided with the Government’s broader fiscal recovery, with overall revenue collection reaching 46.9% of the 2025 annual target by mid-year. Value Added Tax (VAT) on imports rose by 34.3% to Rs. 354 billion, reflecting not only the increase in import volumes but also the higher VAT rate of 18%, implemented as part of the revenue-based fiscal consolidation program.
Officials attributed the strong revenue performance to a combination of policy reforms and improved administration. “The removal of import restrictions, the revision of excise duty rates, and enhanced digital monitoring of customs operations have collectively expanded the tax base,” the Ministry stated.
However, economists have cautioned that while the return of vehicle imports has provided a short-term boost to revenue, it could also reignite pressure on foreign exchange reserves and the trade balance. The report recorded a 28.7% widening of the trade deficit, reaching USD 3.27 billion in the first half of 2025, primarily due to increased import expenditure.
Sri Lanka’s vehicle import policy has long been a politically charged issue, balancing the need for foreign exchange conservation with the country’s heavy reliance on customs duties for revenue. The 2025 figures indicate that, for now, fiscal relief has come from the showroom floor but at the potential cost of renewed external sector strain.
