Motor traders push to scrap used vehicle tax break

Cites revenue losses

• CMTA urges authorities to abolish 15% depreciation currently granted on cost, insurance and freight value of used vehicles for duty calculations
• Argues that concession has no economic justification and results in significant revenue leakage to state
• Asserts concessions must be structured, transparent and economically defensible

Sri Lanka’s oldest automotive industry body has stepped up pressure on the government to dismantle what it calls a deeply flawed tax concession on used vehicle imports, warning that the policy is eroding state revenue, distorting competition and undermining foreign exchange discipline.

The Ceylon Motor Traders’ Association (CMTA), affiliated to the Ceylon Chamber of Commerce, yesterday urged the authorities to abolish the 15 percent depreciation currently granted on the cost, insurance and freight (CIF) value of used vehicles for duty calculations.

It argued that the concession has no economic justification and results in significant revenue leakage to the state. While no official decision has yet been announced, the CMTA in a statement said it has consistently raised the issue through multiple budget proposals submitted via the chamber.

The association went on to stress that most used vehicles imported into Sri Lanka today carry virtually zero mileage and are priced almost on par with the brand-new vehicles on a CIF basis, yet benefit from lower duty payments, due to the depreciation allowance. 

This, it said, creates an uneven playing field by effectively allowing the used vehicles to enter the market at preferential tax rates, despite the comparable import values.

While acknowledging the government’s intent to make vehicles more affordable, the CMTA cautioned that concessions must be structured, transparent and economically defensible. If affordability is the objective, it said similar relief could also be extended to the brand-new vehicles sold through the authorised agents, noting that such purchases come with five-year manufacturer warranties that reduce maintenance costs for consumers and save foreign exchange, as repairs and parts are reimbursed by the manufacturers, rather than funded externally.

Referring to a 2013 gazette, the CMTA reiterated that any depreciation applied to vehicle imports should be based on a structured table linked to the vehicle age, with a maximum cap of 10 percent, to prevent the abuse of the system. 

The association also called for strict enforcement of another gazette requiring all imported vehicles to be registered within three months, warning that non-compliance encourages stockpiling, ties up foreign currency and weakens demand-driven imports. Under the regulation, penalties ranging from 4 percent to 40 percent apply, depending on how long the vehicles remain unregistered.

The CMTA said the continued application of the 15 percent depreciation on used vehicles has broader economic implications, particularly in terms of lost government revenue and recommended that the concession be removed entirely. However, if the policymakers choose to retain support for the used vehicle market, the association said it should be delivered through a clear, structured framework, aligned with the national revenue and foreign exchange objectives, adding that it stands ready to work with the government on such reforms.