The CMTA urges authorities to scrap used vehicle tax break in Sri Lanka, citing economic distortions, revenue loss, and unfair advantages for near-new imports. The call reflects growing pressure from the country’s automotive industry to reform import duties.
CMTA pushes to scrap used vehicle tax break to boost revenue and market fairness in Sri Lanka
Sri Lanka’s automotive sector is intensifying calls for reform as the Ceylon Motor Traders’ Association (CMTA) pushes to scrap the used vehicle tax break, a concession it says is economically unjustifiable and fiscally costly. The association, affiliated with the Ceylon Chamber of Commerce, warned that the current 15 percent depreciation on the cost, insurance, and freight (CIF) value of imported used vehicles has created significant revenue leakage while distorting market competition.
Under current policy, used vehicles are granted a 15 percent depreciation allowance when calculating import duties. This effectively lowers the taxable base for vehicles that, in many cases, carry minimal mileage and are priced nearly the same as brand-new imports. The CMTA argues that such concessions unfairly favour near-new vehicles and undermine government efforts to safeguard foreign exchange and state revenue.
“While the government’s intention may be to make vehicles more affordable, concessions must be transparent, structured, and economically defensible,” the CMTA said in a statement. The industry body suggests that if affordability is the goal, similar incentives should also apply to new vehicles purchased through authorised dealers. These vehicles often include five-year manufacturer warranties that reduce consumer maintenance costs and limit outflow of foreign currency for repairs and spare parts.
The association referred to a 2013 gazette stipulating that depreciation on imported vehicles should be calculated using a structured table based on vehicle age, capped at a maximum of 10 percent. According to the CMTA, failure to adhere to such structured rules has allowed loopholes that enable near-new imports to bypass full duty obligations.
Further complicating the situation is the lack of enforcement of regulations requiring imported vehicles to be registered within three months. Under existing law, non-compliance triggers penalties ranging from 4 percent to 40 percent, depending on the duration of unregistered inventory. CMTA warns that lax enforcement encourages stockpiling, ties up valuable foreign currency, and reduces the efficiency of demand-driven imports.
The association’s appeal goes beyond immediate fiscal concerns. It stresses that the broader economic impact of the 15 percent depreciation allowance undermines national revenue collection, contributes to unequal market conditions, and complicates the government’s ability to manage foreign currency reserves. By removing the concession, Sri Lanka could strengthen fiscal discipline and create a level playing field for all automotive imports.
If policymakers choose to maintain support for the used vehicle market, the CMTA recommends implementing a transparent and structured framework aligned with national revenue and foreign exchange objectives. The association emphasized its willingness to collaborate with the government to design reforms that balance market accessibility, consumer affordability, and fiscal responsibility.
Industry experts note that used vehicles continue to constitute a significant portion of imports in Sri Lanka, making this policy review crucial. Reassessing depreciation allowances and introducing structured tax relief can improve regulatory compliance, optimise government revenue, and maintain competitiveness across the automotive sector.
In summary, the CMTA’s campaign to scrap the used vehicle tax break reflects the need for reforms that are economically sound, transparent, and aligned with broader fiscal and foreign exchange priorities. The association’s proposals aim to safeguard revenue, promote fair competition, and provide a consistent regulatory environment for the industry.