Vehicle Import Ban Lifted in Sri Lanka | After nearly five years of restrictions, Sri Lanka’s long-awaited resumption of vehicle imports is finally here. From February 2025, individuals and businesses have been able to bring in vehicles under a phased plan announced by the government, ending a ban that was originally introduced in 2020 to conserve foreign reserves during the country’s economic crisis.
While this decision has sparked excitement among car enthusiasts, dealers, and the general public, the new policy is not a simple return to pre-ban conditions. Instead, it comes with a series of rules, limitations, and taxes aimed at balancing demand with the government’s revenue and environmental goals.
In this article, we unpack the new import framework, the tax structure, restrictions on vehicle types, and what it all means for consumers and the economy.
The Three-Phase Reopening
The return of vehicle imports has been staggered to prioritise public transport and commercial needs before private ownership:
- October 2024 – Imports reopened for public passenger transport vehicles such as buses and certain specialised fleets.
- December 2024 – Permission extended to commercial transport and cargo vehicles, helping logistics and industry meet post-pandemic demand.
- February 2025 – Private passenger cars, vans, SUVs, pickups, motorcycles, and bicycles became eligible for import.
This staged approach was intended to ease the pressure on foreign exchange reserves while meeting urgent transport needs first.
New Import Restrictions
The days of open vehicle imports are over—at least for now. The current rules are designed to limit the volume of vehicles entering the country and ensure compliance with quality and environmental standards.
- Registered Importers Only – Bulk imports are limited to licensed businesses. This prevents casual or speculative importing.
- Individual Quota – Private individuals can import only one vehicle every 12 months, closing the door on small-scale reselling.
- Registration Deadline – All vehicles must be registered with the Department of Motor Traffic within 90 days of arrival. Missing this deadline triggers a 3 % of CIF value penalty per month, capped at 45 %, or requires re-export within 90 days.
- Environmental Compliance – All vehicles must meet Euro 6 emissions standards. Petrol and diesel three-wheelers that fail these criteria remain banned, with the government pushing electric three-wheelers as a greener alternative.
- Age Limits – Private cars, SUVs, and motorcycles must be 3 years old or less; public/commercial vehicles 5 years or less; special-purpose and defence vehicles up to 10 years.
Taxation on Imported Vehicles
If you thought the end of the ban would make vehicles cheaper, the tax policy will come as a reality check. The government has introduced a multi-layered tax regime to generate revenue and control demand:
- Customs Import Duty (CID) – 20 % of the vehicle’s CIF value (Cost, Insurance, and Freight).
- Surcharge – An additional 50 % of the CID, effectively raising the import duty to 30 % of CIF.
- Value-Added Tax (VAT) – 18 %, calculated on CIF plus duties and other charges.
- Luxury Tax – 60–120 % on high-value passenger and transport vehicles.
- Excise Duty – Rates vary based on age, fuel type, and engine capacity. Electric vehicles and cargo vans face some of the steepest increases, in some cases doubling compared to pre-ban levels.
These taxes mean that while imports are now legal, affordability remains a significant barrier for most buyers.
Economic Impact
From a fiscal perspective, the return of vehicle imports is good news for the government. According to Fitch Solutions, the renewed import activity could boost Sri Lanka’s tax revenue by an estimated 1.8 % of GDP in 2025. This includes:
- VAT – 0.3 % of GDP
- Excise Duty – 1.0 % of GDP
- Import Duties – 0.5 % of GDP
These inflows are critical for meeting fiscal targets agreed with the International Monetary Fund (IMF).
From a broader economic standpoint, the resumption of imports is expected to benefit sectors such as:
- Automotive Sales & Dealerships – More inventory means revived business activity.
- Logistics & Transport – Fresh commercial fleets improve efficiency and service capacity.
- Banking & Finance – An uptick in vehicle loans and leasing activity.
However, the high tax rates could limit overall import volumes, keeping demand tempered compared to the pre-2020 period.
The Market Outlook
The Central Bank has stated there are no current plans to re-impose restrictions, signalling stability for importers and dealers. Still, this stability is closely tied to foreign reserve levels and broader economic performance.
Market watchers expect an initial surge in orders—especially for hybrid and electric vehicles—but a gradual slowdown as high taxes price out a significant segment of buyers. In the longer term, environmental rules could reshape the market, accelerating the adoption of EVs and phasing out older, more polluting models.
What This Means for Buyers
For individuals planning to import a vehicle:
- Plan Ahead – Secure import permits early, especially with the one-vehicle-per-year limit.
- Budget for Taxes – Factor in all duties, VAT, and luxury tax before committing.
- Check Compliance – Make sure the vehicle meets Euro 6 standards and falls within the age limits.
- Work with Reputable Agents – Avoid the risk of delayed registration and penalties.
Final Word
The lifting of the vehicle import ban marks a significant policy shift for Sri Lanka, offering relief to industries and consumers while bolstering state revenue. But the new framework is heavily regulated, and high taxes will keep imported vehicles as a premium purchase for the foreseeable future.
For buyers, the key is preparation—both financially and in navigating the regulations. For the economy, this policy will be a balancing act between meeting public demand and protecting fiscal stability.
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