Experts weigh on vehicle import resumption and outlook

•  Ceylon Chamber of Commerce Chairman and Economic Policy Advisor to the President Duminda Hulangamuwa highlights key role of vehicle imports in boosting Govt. revenue at HNB Leasing forum
• Says vehicle imports are expected to contribute Rs. 300 -350 b in 2025 through duties, taxes, levies 
• Reveals vehicle imports previously ranged around $ 1-2 b annually, peaking at $ 2 b in 2018
• Opines removal of import restrictions expected to enhance foreign investment, create jobs and signal investor-friendly environment 
• Suggests rise in vehicle imports may lower prices in new and second-hand markets, increasing affordability for majority 
• Asserts Govt.’s phased approach priorities commercial vehicles and public transportation to balance economic stimulation, protect second-hand market investments 
• States vehicle permits will only be granted if fiscal status of economy improves over next year
• Calls on banks and motor industry to support transition 

By Janani Kandaramage

As the Government prepares to lift the vehicle import restrictions early next month, the implications and strategies for future management of the economy and the motor industry came under intense scrutiny last week.

In a forum hosted by HNB Leasing titled, ‘Sri Lanka Motor Industry: Outlook for 2025’, key stakeholders in the vehicle industry expressed optimism about the anticipated economic progress with this removal, whilst acknowledging the challenges in overseeing and regulating the motor industry effectively. 

Delivering the keynote address, Ceylon Chamber of Commerce Chairman and Economic Policy Advisor to the President Duminda Hulangamuwa highlighted the critical role vehicle imports play in boosting Government revenue. 

He said the Government revenue must be increased through import duties, taxes, and levies associated with vehicle transactions, supporting fiscal discipline and contributing to GDP growth.

“The Government needs to collect Rs. 300-350 billion, which is around 1% of GDP from vehicle imports, to bridge the budgetary deficit between revenue and expenses. Our biggest source of income is expected from vehicles,” he opined. 

In 2018, Sri Lanka’s vehicle imports amounted to nearly $ 2 billion, with a slight decline to around $ 1.4 billion in 2019. On average, the country imports between $ 1 and $ 2 billion worth of vehicles each year.

Apart from the impact to GDP, Hulangamuwa described the likelihood of enhanced foreign investment, as the impending removal will signal an open and investor-friendly environment, encouraging further job creation and technology transfer.

Hulangamuwa also acknowledged the impact to the second-hand vehicle market, stating that an influx of new vehicles is likely to expand competition in the market, potentially leading to lowered prices for both new and used vehicles-making them affordable to the majority. 

Nevertheless, he noted that the President remains concerned about the substantial number of second-hand vehicles in the market, many of which were purchased through leasing arrangements. 

He explained that if the price difference between new and second-hand vehicles becomes too narrow, it could destabilise the market, particularly in the second-hand vehicle industry — posing negative repercussions for consumers who have invested in used vehicles, as well as leasing companies and financial institutions. 

“To minimise these risks, the Government plans to implement a phased approach, prioritising commercial vehicles and public transportation. This is crucial in striking a balance between economic stimulation and protection of existing investments in the second-hand vehicle market. Additionally, the tax system of the country must be structured in a manner that enables everyone to afford these vehicles,” he said.

Other concerns that were spotlighted included the need to manage dollar reserves.  Although the Government has around $ 6.5 billion dollar reserves, Duminda stressed that if dollar outflows surpass revenue earned from the rise in vehicle imports, the Central Bank will intervene to monitor dollar outflows on a fortnightly basis. The Central Bank will also introduce a banking scheme focused on building a robust banking system aimed at managing foreign exchange flows. 

He also assured that if the fiscal status of the economy improves over the next year, only then will vehicle permits be granted. 

He reaffirmed the present administration’s commitment to enforcing mechanisms to closely observe import registrations, ensuring all vehicle importers fulfil their tax obligations and only eligible entities are authorised in engaging in importation. 

“By reinforcing compliance and curbing unauthorised activities in this sector, we hope to strengthen the foundation of our economic policies and call on banks and stakeholders of the motor industry to support us in this process,” Hulangamuwa remarked. 

The event also featured a distinguished panel, moderated by Daily FT Editor and CEO Nisthar Cassim. The expert panel included Motor Vehicle Information, Communication, and Technology (ICT) Commis-sioner Shiromi Jeewamala, Ceylon Chamber of Commerce Chief Economic Policy Advisor Shiran Fernando, Advocata Institute Chairperson Murtaza Jafferjee, HNB Managing Director and CEO Damith Pallewatte, United Motors Lanka Group CEO Charaka Perera and Ceylon Chamber of Commerce Chairman and Economic Policy Advisor to the President Duminda Hulangamuwa. 

The forum concluded with consensus on the need for strengthened import regulation, policies catered at improving the access of the ordinary citizen to vehicles, and the integration of technology as a means of effective tax surveillance and collection. 

Pix by Upul Abayasekara