The Ceylon Motor Traders’ Association (CMTA) has called on the Government to abolish the existing 15% vehicle depreciation rule before the upcoming Budget 2027 or through it, insisting that the mechanism is driving significant revenue leakage and distorting competition in the vehicle import market.
At a detailed media briefing, CMTA representatives called for the immediate removal of what it describes as a ‘flawed’ mechanism, warning that the loophole in law could result in exceeding Rs. 120 billion in Government revenue leakage in 2026.
CMTA Chairman Andrew Perera outlining their recommendations to the Government said if immediate removal proved administratively difficult, to seek an interim, tiered system based on the age of the vehicle, similar to an earlier depreciation framework.
It suggested categories such as zero to six months and six to 12 months, with the maximum depreciation capped at around 10%, adding that this would improve revenue collection to the Treasury, reduce market distortions, and provide the industry with greater policy predictability.
The CMTA reiterated that the existing valuation mechanism was creating an ‘uneven playing field’ between authorised distributors importing brand-new vehicles and other import channels, whilst depriving the Treasury of substantial tax revenue.
Perera said the Association estimated revenue leakage at around Rs. 40 billion in 2025, a figure he described as ‘conservative’ as it covered only selected passenger car segments.
‘Data for January to July 2026 indicated leakage of around Rs. 54 billion,’ he said, putting the full-year figure on course to surpass Rs. 120 billion.
Perera said brand-new imports represented only around 30% of total vehicle imports, with the balance 70% entering through channels that benefit from the depreciation allowance.
CMTA Member and Ideal Motors Chairman Nalin Welgama traced the issue to Customs Gazette No. 1971/10, issued on 14 June 2016 under Section 101 of the Customs Ordinance, which values brand-new vehicles for Customs purposes based on the manufacturer’s invoiced transaction value.
As per the Gazette, non-brand-new vehicles, however, are valued at 85% of the transaction value of an equivalent brand-new vehicle in the country of export, excluding local taxes.
‘This allows vehicles that are ‘effectively new’ to qualify for a 15% reduced Customs valuation, simply by being briefly registered abroad before being exported to Sri Lanka,’ Welgama stressed.
Citing the UK as an example, he explained that a vehicle priced at £ 100,000 carries £ 20,000 in Value-Added Tax (VAT) locally, but becomes zero-rated once exported, reverting to its £ 100,000 base value. Applying the 15% allowance on top of that then brings the Customs valuation down to £ 85,000.
‘This is not a level playing field,’ Welgama said, pointing out that the Treasury was effectively collecting duty on only 85% of the vehicle’s underlying value.
Welgama called the current arrangement ‘exactly the kind of flawed regulation that must be corrected, otherwise, the Government stands to lose billions of rupees,’ describing it as an ‘extremely serious situation.’
He also said the issue had become particularly significant given the country’s foreign exchange constraints and the need to maximise Government revenue.
‘In some instances, the tax saving was not necessarily passed on to consumers, but could instead translate into higher margins for importers and also triggering ‘hawala’ style transactions,’ Welgama claimed.
Representatives of individual brands and members of the CMTA detailed the financial impact on specific models.
Perera, presenting Toyota figures in the absence of a company representative, said the Toyota Raize 1.2-litre could carry an estimated revenue leakage of around Rs. 2 million per vehicle, with roughly 8,900 units imported, which translates to an estimated Rs. 18.7 billion in foregone revenue.
He said similar calculations for the Toyota Yaris Cross and related models pointed to a combined leakage of around Rs. 12 billion.
Kia Motors (Lanka) Ltd., Chairman Mahen Thambiah said one Indian-manufactured Kia model priced at around Rs. 10-12 million was generating a tax advantage of nearly Rs. 1.5 million per vehicle through the depreciation mechanism. ‘With over 1,000 units imported over the past year, the potential revenue loss from that model alone is around Rs. 1.5 billion,’ he estimated.
Stafford Motor Company Ltd., Director Tarindra Kaluperuma, as the authorised Honda distributor, cited the Honda Vezel as another example. He said the Vezel is manufactured specifically for Japan’s domestic market, while the Honda HR-V is its export equivalent. However, it is the domestic-market Vezel, rather than the HR-V, that has flooded the Sri Lankan market.
‘Vezel brand-new units currently attracted around Rs. 10.6 million in Customs duty under the depreciation mechanism, compared with an estimated Rs. 13.4 million without the allowance, creating a gap of about Rs. 1.8 million per vehicle,’ Kaluperuma added.
DIMO PLC, which imports higher-end luxury vehicles and Sports Utility Vehicles (SUVs), said that for a vehicle valued at $ 50,000, the Government is losing up to Rs. 8 million in revenue per vehicle.
Its Group CEO Gananath Pandithage also pointed out that authorised distributors bear substantial costs through training, workshops, infrastructure, and after-sales networks, while some informal importers operate with little more than ‘a security guard and a phone number.’ He said the resulting tax advantage was often retained as additional margin rather than passed on to consumers. ‘They don’t even pay proper income tax even,’ Pandithage claimed.
Former CMTA Chairman Charaka Perera pointed to a decade of repeated changes to vehicle taxation, spanning hybrid and electric vehicle (EV) duty adjustments, the shift from value-based to engine-capacity-based taxation, the introduction of luxury taxes, a five-year import suspension and reopening, and more recent changes to Customs Import Duty, the Social Security Contribution Levy (SSCL), and additional surcharges.
He also cited fluctuating loan-to-value (LTV) ratios for vehicle financing moving from around 50% in early 2025 to 60%, back to 50%, and down to 40% by May 2026 as a further source of market uncertainty.
The CMTA stressed its objective is ‘not preferential treatment’ for brand-new vehicle importers, but a ‘uniform Customs valuation’ and duty regime applied to all market participants.
‘All we’re asking for is a stable and level playing field, where we have a uniform duty structure, for everyone who’s playing in the automotive sector,’ they reiterated. (CdeS)