By Kalani Kumarasinghe
For many Sri Lankans, owning a vehicle is more than a convenience—it’s often a necessity.
Yet, the steep cost of vehicles makes this dream unattainable for many. Whether due to high taxes, restricted imports, or market speculation, vehicle prices remained prohibitively high in Sri Lanka even before the country faced its worst economic crisis.
The vehicle import ban, introduced in March 2020 to conserve foreign reserves during the country’s economic crisis under the Gotabaya Rajapaksa government, further exacerbated the issue.
With the new government’s plans for a phased relaxation of the import ban, discussions have now shifted to understanding what drives these high costs. At the core of the issue, however, are Sri Lanka’s long-standing taxation policies, which remain the primary reason vehicles are so expensive.
The price of mobility in Sri Lanka
The Tata Nano, launched in India in 2008 as the world’s cheapest car, was priced at approximately INR 1 lakh (around LKR 250,000 at that time). However, when introduced to the Sri Lankan market in 2011, the Nano’s starting price was LKR 925,000 (about INR 3.8 lakh), nearly four times its Indian price.
As of December 2024, used Tata Nano models in Sri Lanka are listed between LKR 1.2 million and LKR 2.3 million, depending on the year and condition.
The Tata Nano is no longer in production in India, but used models are available at much lower prices.
A taxation burden that triples the price
Sri Lanka’s vehicle import taxes are among the highest globally, ranging from 200% to 300% based on the vehicle’s category. As CEO of Economic Policy Think Tank Advocata Dhananath Fernando explains, “When you are buying a vehicle, actually you’re paying for three additional vehicles.”
These taxes, while aimed at generating government revenue, significantly inflate vehicle prices. For buyers, this results in unnecessary expenditure that could otherwise be invested in essentials like housing or education.
Restricted imports and supply shortages
The government’s decision to ban vehicle imports during the economic crisis drastically reduced supply, creating a speculative market where even second-hand vehicles became unaffordable. “If you have import controls, there will always be speculative pricing,” says Fernando.
This restricted supply has had a ripple effect on the market, with prices for used vehicles often exceeding those of brand-new models.
Permits, scams and market inefficiencies
In Sri Lanka, the government has historically provided concessionary vehicle import permits to eligible public servants, allowing them to import vehicles with reduced duties.
The issuance of vehicle import permits has also contributed to price manipulation. Fernando highlights, “When you have 200 to 300% taxes imposed for vehicles and you give permits to selected groups, of course, it is an incentive for a lot of scams.”
These inefficiencies result in a secondary market for permits, creating further distortions in vehicle pricing.
High demand for specific vehicles
Certain types of vehicles, such as hybrids and electric cars, are highly sought after due to their fuel efficiency and lower operating costs. This additional demand further inflates their prices, especially when combined with restricted imports and speculative practices.
Speculative pricing in the market
In an environment of restricted supply and uncertain policies, dealers and sellers often engage in speculative pricing. Fernando points out that this is one of the most unfortunate outcomes of the current system: “Even used vehicles have prices much higher than reconditioned or brand-new vehicles.”
Such speculation thrives on scarcity and uncertainty, leaving consumers with limited options.
High-interest loans and financing challenges
For many Sri Lankans, buying a vehicle means taking out a loan. However, high interest rates—ranging from 14% to 16%—make financing a burden. Fernando notes, “The middle-class people who are buying these vehicles buy these on a lease, where they have to pay 14 to 16% interest rate on top of that.”
This makes even moderately priced vehicles feel out of reach for most consumers.
Public transport and limited mobility options
While the government justifies high taxes as a way to reduce congestion and promote public transport, the current approach limits choices for consumers. “Overtaxing vehicles will not improve public transport. It will only limit choices for people,” according to Fernando.
Improving public transport is essential, but it cannot come at the expense of private mobility.
Domestic manufacturing: A limited option
Some advocate for domestic manufacturing as a solution, but Fernando is cautious: “By the time we import raw materials and try to do it here, again, the cost of vehicles would be much more expensive than us importing.”
Unless Sri Lanka can achieve a competitive advantage in production, domestic manufacturing may not be a viable solution.
The burden on consumers
Sri Lanka’s vehicle prices are a direct result of policy choices aimed at managing the economy, with high taxes, import restrictions, and market inefficiencies placing a heavy burden on consumers.
Addressing these challenges requires a multi-faceted approach: reducing taxes to strike a balance between revenue generation and affordability, lifting import controls to curb speculative pricing, improving public transport while ensuring private mobility options remain accessible, and offering affordable financing solutions for buyers.
As Fernando points out, “If the government wants to incentivize someone, it is better to give cash so that they can find their own vehicle.” Reforming the system is no small task, but it is vital to promote mobility and economic equity for all Sri Lankans. (Newswire)
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