CMTA warns of another Rs.40bn revenue leak from used vehicle tax break

Sri Lanka risks losing another Rs.40 billion in tax revenue this year, unless the authorities urgently scrap a long-contested concession granted on the used vehicle imports, according to the Ceylon Motor Traders’ Association (CMTA), which argued the measure is creating an unjustifiable advantage for the importers while depriving the Treasury of the much-needed funds.

The automotive industry body estimates that the 15 percent depreciation currently applied to the cost, insurance and freight (CIF) value of the used vehicles resulted in around Rs.40 billion in foregone government revenue in 2025 alone, a figure it says could be repeated in 2026, if the policymakers fail to act.

The government is looking to bolster the state revenues and maintain fiscal discipline under its economic reform programme, with every additional rupee increasingly important for public services, infrastructure development and debt sustainability.

“The continued application of a blanket 15 percent depreciation is resulting in significant and unnecessary revenue leakages for the government,” the CMTA said in a statement.

The association said the loopholes within the existing framework have created opportunities for abuse while weakening transparency and regulatory oversight in the vehicle import sector.

At the centre of the dispute is the 15 percent depreciation allowance granted on the used vehicle imports for duty calculation purposes. The CMTA argues that the concession may have had relevance when genuinely used vehicles dominated the imports but no longer reflects market realities.

The CMTA pointed out that a large share of vehicles entering the country through the used vehicle channel are virtually zero-mileage units, often carrying the CIF values comparable to the brand-new vehicles. Granting them a flat depreciation allowance effectively reduces the tax payable and creates what the association describes as an unfair advantage over the new vehicle importers.

The CMTA said it has repeatedly raised the issue through the budget proposals submitted via the Ceylon Chamber of Commerce and has consistently maintained that there is no viable justification for retaining the concession in its current form.

The association acknowledged that the policymakers may view the depreciation allowance as a means of improving affordability for the consumers but argued that such objectives should not be achieved through measures that distort the market and erode government revenue.

“If the intention is to reduce the vehicle prices, similar policy considerations could be extended to the brand-new vehicles rather than selectively benefiting one segment of the market,” it said.

The body further noted that the buyers of new vehicles benefit from the manufacturer warranties, reducing maintenance and repair costs during the warranty period and providing greater long-term value to the consumers.

As an alternative, the CMTA pointed out the structured depreciation model introduced in 2013, under which depreciation was linked to the vehicle age and capped at a maximum of 10 percent. Such a framework, it said, would more accurately reflect the value of imported vehicles while improving transparency and preserving government revenue.

The association urged the authorities to move swiftly, warning that every month of delay increases the risk of further revenue losses and undermines efforts to strengthen public finances.