Govt. considers vehicle tax cuts to meet Rs. 700 b revenue

Friday, 21 February 2025 00:10 - - {{hitsCtrl.values.hits}}

Deputy Finance Minister Prof.

Anil Jayantha

Deputy Finance Minister Prof. Anil Jayantha Fernando says high taxes initially imposed to protect foreign reserves; potential duty cuts depend on market response
Reveals Central Bank signals
possibility of import duty
reductions
Says no significant surge in forex demand for automobile imports
Opines vehicle import policy aims to boost economic activity beyond revenue generation
Early data shows moderate interest in opening LCs for vehicle imports

The Government yesterday announced that it may consider revising the newly imposed vehicle taxes downwards, if demand fails to materialise to earn Rs. 700 billion from vehicle related tax revenue by the year end.

Deputy Finance Minister Prof. Anil Jayantha Fernando yesterday said the decision to maintain high taxes was initially driven by concerns over the country’s foreign reserves. However, an assessment of market reaction in the coming months could open the door for duty reductions, subject to guidance from the Central Bank of Sri Lanka (CBSL).

“We change the duties to increase the prices. But now an indication has been given by the Central Bank that there is a possibility to reduce import duties,” he said, joining the post-Cabinet meeting media briefing yesterday.

The announcement comes amid early data suggesting substantial — but not overwhelming interest in opening letters of credit (LCs) for vehicle imports.

Prof. Fernando said there had been no significant surge in forex demand for vehicle imports.

The Deputy Minister noted that the decision to reintroduce vehicle imports was not merely a revenue-generating exercise, but also aimed at stimulating economic activity.

“There is a spillover effect on the economy,” Prof. Fernando said, noting that easing import controls could benefit transportation, logistics, and related industries.

“Those activities will also produce income,” he added

The Budget 2025 targets a Rs. 885 billion increase in tax revenues, bringing the total to Rs. 4,590 billion. Vehicle imports were seen as a key contributor to this, with a $ 1.2 billion value cap proposed to manage foreign exchange outflows.

The Central Bank recently noted that it has not observed a significant spike in forex demand for automobile imports, potentially undermining fiscal hopes of raising tax revenue to 15.1% of GDP in 2025.

The market response, however, has been mixed. With new car demand disappointing, some importers have turned to used vehicles from Japan and had also slashed their initial prices by a few hundred thousand — a shift that could impact the Government’s revenue projections.

“After observing how the market reacts in a few months’ time, the Government would be in a better position to comment on the situation,” he said, adding that there were no official figures available on the number of LC’s opened.

He said the economic impact of vehicle imports so far cannot be calculated without having data, as tax components differ among different categories. (CdeS)

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