Sri Lanka automotive sector faces massive revenue leakage

The Ceylon Motor Traders' Association (CMTA) has raised alarms regarding massive revenue leakages within Sri Lanka's automotive industry. The association warns of a Rs. 40 billion loss in government revenue due to policy inconsistencies and a lack of regulatory transparency.

A specific concern involves a 15% vehicle depreciation rule under Customs Gazette No. 1971/10. The CMTA argues that this rule allows effectively new vehicles to be valued at only 85% of a brand-new vehicle's transaction value if they are registered overseas before being shipped to Sri Lanka. This practice, which removes local VAT from the transaction, could potentially deprive the Treasury of more than Rs. 120 billion by 2026.

Industry representatives, including the CEO of DIMO Group, suggest that these tax advantages benefit certain importers rather than consumers. While authorized distributors maintain high overheads for warranties and after-sales services, alternative importers may use these valuation loopholes to gain a competitive edge. The CMTA is calling for stronger enforcement to prevent undervaluation and ensure fair competition.