Sri Lanka is set to ease its ban on certain vehicle imports, a significant step towards normalcy after enduring a crippling economic crisis. The government announced plans to allow the resumption of imports for buses, trucks, and utility vehicles starting from February 1, with the intention of gradually lifting restrictions on other vehicle categories. This development comes as a relief to many, including individuals like Gayan Indika, who rely on vehicles for their livelihoods. However, the high cost of imported vehicles due to increased taxes and currency depreciation raises pertinent concerns.
In an effort to curb the surge in vehicle importation post-ban, the Sri Lankan government has sharply raised excise duties on both new and second-hand imported vehicles, with rates reaching as high as 200% to 300%, dependent on engine size. Additionally, an 18% Value Added Tax (VAT) applies to imported vehicles. These measures significantly inflate vehicle costs, making them unaffordable for many Sri Lankans. R Yasodha expressed the financial strain by stating:
"We have been waiting to purchase a vehicle for a long time. But if we calculate the tax and the price, the cost of an average-sized car has doubled from 2.5 million rupees ($8,450; £6,800) to five million rupees."
The situation is further compounded by the weakness of the Sri Lankan rupee against major world currencies like the US dollar. Consequently, prices for used cars have soared, with some models now costing two to three times their pre-ban values. This price escalation poses a dilemma for individuals like Gayan Indika, who stated:
"I want to buy a new car so that I can do my work and resume my private cab rental. Without a car, without mobility, I am losing a lot of my revenue."
Sri Lanka imports nearly all its vehicles, primarily from Japan and India. Before the ban, the country imported around $1.4 billion worth of vehicles annually. In response to persistent demand and economic recovery efforts, the central bank plans to allocate up to a billion dollars for vehicle imports, although funds will be released incrementally.
The severe foreign currency shortage Sri Lanka faced in 2022 led to an inability to meet creditor obligations, marking a first in its history. The economic turmoil included shortages of essential commodities such as fuel, food, and medicines. Amidst these challenges, Colombo secured a $2.9 billion bailout from the International Monetary Fund (IMF), and subsequent austerity measures were introduced by the new administration.
Despite easing import restrictions, the cost barriers remain formidable. The average cost of an imported vehicle has doubled, raising questions about affordability. R Yasodha highlighted:
"It would cost a fortune for us."
Moreover, public transportation inadequacies compel many to own private vehicles for essential travel. As Sasikumar noted:
"As we don't have a good public transport system, a car is essential to travel to other parts of the country. Either the government should lift the ban on cars or improve the public transport."
The lifting of import restrictions is expected to stimulate various sectors of the economy. Murtaza Jafeerjee commented on the potential broader impact:
"The vehicle imports will not only increase the government's revenue but will also trigger other economic activities like car financing, dealer revenue, car servicing and other related activities, creating jobs."