Sri Lankans had to wait exactly five years until the import ban on private vehicles was lifted. It was imposed by the then Government in the wake of the Covid pandemic to save foreign exchange. This was understandable, as the overall vehicle bill amounts to around US$ 1.5 billion in an average year. And the Government had bigger priorities on hand at the time.
Of course, the forex crisis was compounded by the economic crisis of 2022, whereby the foreign reserves plummeted to just US$ 20 million. This is not the proper forum to discuss why or how it happened, but suffice to say that no imports were possible in that situation, leave alone cars.
Fast forward to 2025 and the economy is sufficiently strong to absorb an outflow of US$ 1.5 billion or even more, with strong tourism, remittances and export receipts. The Government gradually loosened import restrictions on commercial, agricultural, earthmoving and public passenger transport vehicles, which are much more important than private cars for the overall economy.
But Sri Lankans saw a trickle of private vehicles coming in. Diplomatic vehicles were of course exempted from the import ban and there were also donations of vehicles by foreign governments and aid agencies for various projects. Around 1,000 brand new Battery Electric Vehicles (BEVs) from manufacturers such as Tesla, BYD, BMW, Mercedes, Audi, MG and VW were imported through expatriate workers permits, though the scheme itself was dubious to begin with. Nevertheless, it gave Sri Lankans a chance to see the latest BEVs in the metal. It also highlighted some of the challenges we face in adapting to electric vehicles, from the relative lack of charging stations to the dearth of qualified people who can handle repairs. But BEVs and New Energy Vehicles (NEVs) are here to stay.
Some say that lifting the import ban on private cars was premature as we are not out of the woods yet – economically speaking. But they risk not seeing the wood for the trees, because there are several dimensions of this issue. One is that the cars purchased in 2018-2019 are now getting a bit long in the tooth, with various problems appearing here and there. Generally, a brand new car is in “mint condition” for five or six years (with proper servicing and parts replacement) and then goes downhill from there. The problem is that many car owners tend to source used or reconditioned parts for their car as it begins to show its age. This is an additional burden on our Treasury as more spare parts are needed to maintain these ageing cars. Also, older Internal Combustion Engine (ICE) cars experience engine issues and tend to pollute more, even though they may pass the Emissions Test. It gets more expensive to keep an older car running.
Furthermore, cars have literally come a long way from 2019, with more safety technologies and enhancements, better fuel efficiency in ICE cars, better range in BEVs and more environmentally friendly technologies.
We tend to miss out on all these developments if we continue to shut the door to car imports. Besides, BEVs have improved by leaps and bounds in the last five years and are now comparable in performance to the equivalent ICE cars, petrol or diesel.
However, a debate has arisen over the high retail (showroom) prices of both ICE cars and BEVs. One main factor is the rapid depreciation of the Rupee (LKR) versus the Dollar (USD). In 2019, a USD fetched around LKR 190, whereas now it is around LKR 300. If USD is used for Letters of Credit (LCs), a car that cost US$ 30,000 CIF (Cost, Insurance and Freight) in 2019 (Rs.5.7 million at 1 USD=LKR 190), will now cost Rs.9 million, before any taxes and duties. Another reason is that the economy is still recovering despite its relative stability and the Government has to collect extra tax revenue to bridge revenue shortfalls. For some vehicles, taxation exceeds 400 percent as VAT is also factored in twice.
The Government has also scrapped all permit schemes for now, which means that everyone will have to pay the same price to buy a given car. Still, a sticker shock is inevitable, with even the cheapest brand new sedan car priced above Rs.8 million. BEVs too have been hit hard, with their retail prices hovering Rs.2 million (at least) above their ICE counterparts, even if the CIF value is more or less the same. But most sole agents are reporting brisk sales at least of high-end luxury BEV and ICE vehicles, with that set of buyers seemingly immune to the vagaries of money. As always, a true picture of the car market will emerge once the dust settles.
But there is no question that the tax structure should be amended as soon as economic conditions allow. We need more BEVs on the road to reduce our fuel import bill, whilst making sure that they do not sap too much energy from the national grid. There is a dire need for more high-speed charging stations and every new filling station should be required to have at least one. The installation of solar charging stations too should be encouraged.
The Government should also ensure that the local car assembly industry can survive the onslaught of imports, with more incentives and concessions given to the sector. They should be told to get even more parts locally fabricated, since seats, tyres and upholstery are already supplied by local companies. Perhaps they could be exempted from VAT at the Point of Sale to give a further advantage.
The Government should give a thought to improving our public transport system, the shabby state of which is the reason why everyone wants to buy a car in this country. Only then can we think of discouraging people from buying new cars and motorcycles. Until then, buying a car will remain a top aspiration.
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