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The Ceylon Chamber of Commerce-affiliated automotive body Ceylon Motor Traders’ Association (CMTA) yesterday urged the Government to take decisive action in the upcoming 2027 Budget to abolish the 15% depreciation concession granted on used vehicle imports.

Doing so, CMTA said, will address significant Government revenue losses and establish a unified tax structure across the automotive sector.

Despite the issue being raised through previous Budget proposals submitted via the Ceylon Chamber of Commerce, the necessary policy change remains outstanding. With the upcoming Budget presenting another opportunity to address this long-standing concern, the CMTA stresses that the Government prioritise the matter this time around to safeguard public revenue, eliminate existing market distortions and ensure a fairer, more transparent vehicle taxation system in the country.

The association estimates that Government revenue leakage arising from the current depreciation mechanism amounted to approximately Rs. 40 billion in 2025, rising to an estimated Rs. 120 billion by September 2026. This substantial increase highlights the urgency of addressing the issue, as continued revenue losses place further pressure on public finances at a time when Government revenue is critical to supporting economic recovery, national development and essential public services.

Under the existing system, used vehicles receive a 15% depreciation on their Cost, Insurance and Freight (CIF) value when calculating import duties. However, many vehicles entering Sri Lanka through the used vehicle market are virtually zero-mileage units, with CIF values comparable to those of brand-new vehicles. The CMTA argues that applying a blanket depreciation concession in such circumstances creates an unjustified tax advantage for used vehicle imports, despite the limited difference in the underlying value of the vehicles, while significantly impacting on the revenue collected by the State.

The CMTA maintains that abolishing this concession should form part of a broader effort to establish a unified and equitable tax structure for vehicle imports. A consistent approach to taxation would help eliminate preferential treatment between market segments, reduce opportunities for misuse and create a more transparent and predictable operating environment for importers, consumers and the Government.

The Association also calls on the authorities to strengthen oversight and take decisive action against those exploiting the existing framework for personal gain. Closing loopholes and addressing practices that undermine the intended application of import duties are essential to protecting Government revenue and maintaining the integrity of Sri Lanka’s automotive trade.

While recognising the importance of vehicle affordability, the CMTA emphasises that this objective should not be pursued through selective tax concessions that distort the market and impose a significant cost on the Treasury. If reducing the cost of vehicle ownership is a policy priority, the Association believes that any such measures should be considered within a broader, consistent taxation framework rather than through benefits that favour one category of vehicle imports over another.

The Association further notes that buyers of brand-new vehicles benefit from manufacturer warranties, which can help reduce maintenance and repair expenses during the warranty period. This offers consumers additional assurance regarding reliability, after-sales support and the potential cost of ownership, factors that should also be considered when evaluating policies affecting the new and used vehicle markets.

The CMTA has previously advocated a more structured approach to depreciation, including a framework proposed as far back as 2013 and then continuously proposing same to every Government up to date, under which depreciation would be determined according to vehicle age rather than applied as a flat-rate concession. The proposal envisaged a defined scale with depreciation capped at a maximum of 10% providing a more transparent and equitable basis for calculating vehicle import duties.

While the Association continues to advocate the abolition of the existing 15% concession, it maintains that, should the Government decide to retain a depreciation mechanism, it must be based on a clearly defined and consistently applied framework that reflects vehicle age and is subject to a reasonable cap. Such an approach would help minimise arbitrary tax advantages while improving transparency and protecting State revenue.

As the Government prepares its upcoming budget, the CMTA reiterates that this issue requires urgent attention and can no longer be deferred. Addressing the depreciation concession and establishing a unified vehicle taxation structure would represent an important step towards reducing revenue leakages, strengthening public finances and ensuring a level playing field across Sri Lanka’s automotive sector.

The Association therefore urges the Government to act decisively in the upcoming Budget by abolishing the 15% depreciation concession on used vehicle imports and introducing a fair, transparent and unified taxation framework. With the issue having remained unresolved despite previous representations, the CMTA stresses that the forthcoming budget must provide a clear policy direction and deliver the corrective action needed to protect Government revenue and support a more equitable automotive market.

When the United Arab Emirates and Canada signed a new Comprehensive Economic Partnership Agreement on 27 October, the announcement offered another example of how governments are actively reshaping their international economic relationships. The agreement promises improved market access once implemented, alongside wider cooperation in investment, infrastructure and strategic industries.

For Sri Lanka, the important question is not whether it should pursue an identical agreement. It is whether the country is obtaining sufficient economic value from the trade relationships it already possesses.

That question deserves attention because international trade is not simply a matter of increasing the movement of goods. Countries must also consider how trade contributes to employment, domestic production, foreign exchange earnings and the development of more competitive industries.

The UAE is already an important commercial partner for Sri Lanka.

According to the Sri Lanka Export Development Board, Sri Lankan exports to the UAE reached approximately $341 million in 2025, compared with imports of about $1.44 billion. The UAE was Sri Lanka’s seventh-largest export destination and third-largest source of imports.

These figures demonstrate the scale of the relationship, but they do not tell us everything about its economic value.

A bilateral merchandise trade imbalance should not automatically be treated as evidence of an unhealthy relationship. Imports can support domestic production, transportation, energy supply and other essential economic activities. Their contribution depends on what is purchased and how effectively those inputs are used.

Nevertheless, the figures provide a reason to examine whether Sri Lankan companies could generate greater value from their existing access to Gulf markets.

Among Sri Lanka’s principal exports to the UAE in 2025 were tea, garments, diamonds, cocoa preparations, coconut products and petroleum oils.

The diversity of these products presents different commercial possibilities.

For tea exporters, the challenge is not necessarily finding another destination for an established product. It may involve developing stronger brands, improving packaging, identifying higher-value customer segments and building relationships with distributors who understand regional demand.

For apparel manufacturers, competitiveness increasingly depends on reliability, design, production standards and the ability to respond to changing customer requirements.

For coconut-based food producers, opportunities may involve product differentiation, quality assurance and consistent access to retail and food-service markets.

None of these possibilities is guaranteed. Each requires careful market research, regulatory compliance and commercial execution.

In my view, a useful trade strategy should distinguish between exporting more and earning more value from exports.

A company that sells larger volumes at weak margins may become more exposed to transport costs, currency movements and financing pressures. A smaller exporter that develops a recognised product and stable distribution arrangements may create greater long-term value.

This is particularly relevant for small and medium-sized enterprises that cannot easily absorb the costs of unsuccessful overseas expansion.

The UAE’s position as an international commercial and logistics centre creates potential access to customers beyond its domestic market. But such access should not be confused with automatic market entry into other countries.

Distribution arrangements, customs rules, product standards and destination-market requirements still matter. Businesses should examine the full commercial chain rather than assume that shipping goods through an international hub provides unrestricted access elsewhere.

The recent UAE-Canada agreement illustrates how trade cooperation can develop alongside investment and infrastructure planning.

Canadian and Emirati institutions have announced initiatives involving energy and international logistics. A memorandum concerning the Port of Churchill, the Hudson Bay Railway and DP World’s international network is intended to explore new transportation opportunities.

The proposal is not yet an operational corridor. Its significance lies in the attention being given to connectivity and alternative commercial routes.

Sri Lankan policymakers and businesses should consider a related issue: how dependable are the systems connecting domestic producers to foreign customers?

A tea exporter may secure an attractive contract but lose competitiveness through inconsistent delivery. A garment manufacturer may invest in production capacity yet remain vulnerable to delays affecting imported materials. A food producer may meet customer expectations but encounter difficulties with documentation or distribution.

Such problems cannot always be solved by signing additional trade agreements.

They require improvements in operational coordination, logistics reliability, standards compliance, digital processes and commercial information.

Export-support institutions can help by connecting companies to buyers, providing accurate market intelligence and improving knowledge of regulatory requirements. Financial institutions can contribute by offering suitable trade-finance products, subject to responsible risk assessment.

Meanwhile, businesses must examine their own exposure to concentrated customers, suppliers and transportation arrangements.

The objective should not be to eliminate commercial risk, which is impossible. It should be to ensure that expansion does not create dependencies that management cannot understand or control.

There is also value in considering service exports alongside physical goods.

Sri Lanka possesses professional skills and business capabilities that may have applications in technology, engineering support, business services and specialised operations. These opportunities depend on market demand, contractual requirements and the ability to deliver services consistently across borders.

International competitiveness should be developed through capabilities that companies can demonstrate, not through optimistic assumptions about future demand.

For Sri Lanka, the UAE relationship offers an existing platform from which to examine these issues. Its commercial importance is already established. The question is how businesses can make that relationship more productive.

The agreement between Canada and the UAE provides a reminder that economic partnerships are changing as countries seek new markets and strengthen commercial connections.

Sri Lanka does not need to copy every agreement announced elsewhere. It needs to understand which weaknesses limit the value of its present relationships and which improvements would allow local businesses to compete more effectively.

The future of trade should not be measured only by how many products cross a border.

It should also be measured by how much sustainable economic value remains with the people and businesses producing them.