For months, the local automotive scene has been buzzing with speculation about what the upcoming 2026 Budget in Sri Lanka will mean for vehicle imports. Since the lifting of the import ban earlier this year, pent-up demand has driven massive revenue for the government. But for anyone planning to purchase a new or used vehicle, the latest signals from Colombo suggest that while imports will continue, key restrictions and high costs are here to stay—with a potential new tax shock looming.
The Age-Old Restriction Remains Firm
One of the most persistent rumors circulating among dealers and prospective buyers was the possibility of easing the vehicle age limit in Sri Lanka. Specifically, many hoped the government would allow the importation of vehicles up to five years old, a move that would open up supply and potentially stabilize car prices in Sri Lanka.
However, recent reports indicate that the government has decided to maintain the current vehicle age restriction. This means the stricter limits—intended to balance sustainable import policies and currency outflow—will remain in force. So, if you were banking on bringing in an older, more affordable used car, you might be out of luck for now.
Will Import Duties on Cars Rise Again? The 15% Rumor
While the government plans to rely heavily on the sector to meet its revenue targets (projecting around Rs. 550 billion for 2026), the current, already-high tax structure is generally expected to remain unchanged. Officials are unlikely to introduce sweeping major revisions to existing taxes.
But a serious new warning has emerged from the industry that could dramatically inflate prices:
- The Exemption Threat: The Vehicle Importers Association of Sri Lanka (VIASL) has raised the alarm over a rumor that the government may remove a crucial 15% duty exemption that is currently applied to the value of imported vehicles.
- The Impact: Importers currently pay duty on 85% of the vehicle’s value. If this 15% concession is removed, the duty will apply to the full 100% of the value, leading to an unprecedented price hike across all categories. For example, a modest car like a Suzuki Wagon R could see an increase of approximately Rs. 400,000, with high-end models rising by several million.
The association is urging the government to scrap the proposal, arguing that it will make vehicles unaffordable and slow down sales after the initial post-ban demand tapers off.
The Big Picture: Revenue and the IMF Program
Why is the Sri Lanka vehicle import sector such a volatile area right now? The answer lies in the country’s economic recovery and its commitments to the IMF program.
- Revenue Generation: Vehicle import taxes have been a runaway success this year, already generating massive inflows following the relaxation of the long-standing import ban. The government needs this revenue stream to hit its ambitious fiscal targets.
- Fiscal Discipline: The 2026 Budget must align with the fiscal discipline framework set by the IMF. This means maintaining high revenue collection through measures like import duties and being cautious about any policy that could unnecessarily drain foreign reserves.
In short, the policy direction is clear: keep the doors open just enough to rake in tax revenue, but keep strict controls (like the age limit) and high taxes to prevent excessive forex outflow and meet international commitments.
What Importers and Buyers Should Watch: The industry is bracing for the budget speech, particularly the final decision on the 15% duty exemption. If this tax is introduced, expect Sri Lankan car prices to jump overnight.
Disclaimer: This article is based on current market reports, government official statements, and industry rumors circulating ahead of the official 2026 Budget announcement. Vehicle import policies, age restrictions, and tax structures are subject to change without prior notice. Readers are advised to verify all information with the relevant Sri Lankan government authorities, such as the Department of Motor Traffic and Sri Lanka Customs, after the Budget is formally presented.
