• Over 20,000 tax-free vehicle permits have accumulated over past 5 years 

In a move to revitalise the country’s economy, the Government has announced plans to lift the ban on vehicle imports starting next month, a significant policy shift that comes after nearly five years of restrictions. The import ban, which was imposed on 1 March 2020 as part of efforts to address the economic crisis at the time, has left over 20,000 tax-free vehicle permits unused. 

Despite the Government’s intention to reopen the vehicle import market, those holding tax-free vehicle permits will not be prioritised in this year’s import plan.

The vehicle import ban was introduced in 2020 as part of a broader set of economic measures aimed at managing Sri Lanka’s foreign exchange reserves during a period of severe financial instability. 

These measures affected various sectors, with vehicles being one of the most visible areas impacted. During this period, the Government imposed strict controls on imports to conserve foreign currency and mitigate the risk of further depleting national reserves.

However, with the gradual stabilisation of the economy and the need to stimulate economic activity, the Government has decided to lift the restrictions and reintroduce vehicle imports. The reopening of the vehicle import market comes at a time when the country is still grappling with financial challenges, including the need to build up its foreign reserves and address the fiscal deficit.

As the Government moves ahead with the reopening of the vehicle import market, several key issues remain unresolved. The final decisions on taxes, import volumes, and the exact details of the import plan will be determined by the Ministry of Finance in the coming weeks.

Meanwhile, the public and vehicle permit holders await further clarity on how these policies will be implemented.

Tax-free vehicle permits

The Government’s decision to allow vehicle imports again has led to concerns regarding the over 20,000 tax-free vehicle permits that have accumulated over the past five years. 

These permits, issued to senior-level Government officials, military personnel, and other designated individuals, allow the holders to import vehicles without paying the usual taxes. The permits are part of a longstanding Government policy designed to offer incentives to specific categories of public service employees.

The Trade and Investment Policy Circular No.01/2018, which replaced previous guidelines, outlines the criteria for receiving these tax-free vehicle permits. 

Under the circular, senior-level executive officers in Government service, State corporations, statutory bodies, and Parliament, as well as officers holding military ranks such as lieutenant colonel in the Army, wing commander in the Air Force, and commander in the Navy, are eligible for the permits after completing a specified number of years in active service.

In addition to Government and military personnel, chartered professionals, such as engineers, accountants, and architects, with a certain number of years of service in State institutions, are also eligible for these permits.

However, there are restrictions in place. For example, officers who have already received vehicle permits under concessionary terms or those under disciplinary investigation are not eligible.

Despite the longstanding practice of issuing these permits, the Government has decided not to prioritise permit holders in the 2025 vehicle import plan. 

This decision has sparked concerns among those waiting for their permits to be honoured, but Government officials have clarified that the permits will not be cancelled altogether.

Prioritisation

When contacted by The Sunday Morning, Deputy Minister of Economic Development Prof. Anil Jayantha Fernando addressed the confusion surrounding tax-free vehicle permit holders. 

He explained that while the Government would not cancel the permits, those holding them would not be given priority this year. 

Prof. Fernando stressed that the reopening of the vehicle import market would result in a significant outflow of foreign exchange, adding that one of the Government’s key objectives was to generate revenue through vehicle imports.

“There is a misconception that the Government is going to cancel these vehicle permits, but the truth is we are not going to cancel them. However, the permit holders won’t be included in the priority category because the reopening of the vehicle import market will drain a lot of foreign exchange,” Prof. Fernando said.

He elaborated that the Government’s decision was based on the need to balance foreign exchange reserves while fulfilling the country’s revenue generation targets. If tax-free vehicle permit holders are allowed to import vehicles immediately, the Government will struggle to meet its broader fiscal requirements.

Prof. Fernando added: “We have foreign reserve limitations. We will allow imports under three stages. The first stage will focus on public transportation and the transportation of goods. This is meant to revive a lot of economic activities.” 

The Government is also targeting an increase in revenue to 15.1% of Gross Domestic Product (GDP) by 2025, which will require careful management of the country’s financial resources.

Revenue generation

As the Government prepares to reintroduce vehicle imports, concerns over the impact on foreign exchange reserves remain a key issue. 

Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe has emphasised the need to manage the import volume carefully in order to avoid depleting reserves. While vehicles are considered essential for the country’s economic activities, the Governor warned that uncontrolled imports could result in further strain on the country’s foreign currency reserves.

“The CBSL has projected a $ 1 billion expenditure on vehicle imports this year, down from the $ 1.9 billion spent in 2018 and $ 1.4 billion in 2019,” he explained. “This expenditure will not hinder the growth of financial reserves if it is managed properly.”

Dr. Weerasinghe also expressed concern about the potential for increased demand and higher prices if vehicle imports were not carefully controlled. A sudden influx of imports could lead to higher prices for new vehicles, making them less affordable for the average consumer. The CBSL is advocating a gradual and controlled approach to imports in order to ensure that vehicle prices remain accessible.

In addition to the measures related to vehicle imports, the Government has been focusing on broader economic reforms aimed at improving the fiscal situation and stabilising the financial system. The allocation of $ 1.2 billion for vehicle imports in 2025 is part of this strategy, which also includes measures to boost revenue generation and manage the country’s foreign reserves.

Price impact

Meanwhile, President Anura Kumara Dissanayake has warned that the reopening of the vehicle import market will result in higher prices for new vehicles compared to second-hand ones. 

Speaking during a local TV programme last week, the President highlighted that a sharp drop in second-hand vehicle prices could have adverse effects on banks and leasing companies, potentially leading to a financial crisis.

“The Government is aiming to control vehicle imports in a way that prevents a severe financial crisis,” President Dissanayake said.