Sri Lanka’s vehicle import boom faces 2026 revenue shock
Sri Lanka’s booming vehicle import sector, which played a pivotal role in driving tax revenues to record highs in 2025, is bracing for a notable slowdown next year, raising concerns about potential fiscal gaps. An analysis by the Parliamentary Committee on Public Finance
(COPF) shows that nearly Rs. 600 billion of the Rs 1 trillion increase in total tax revenue this year came from taxes on vehicle imports, surpassing government expectations by over Rs. 200 billion.
“The surge in vehicle import taxes last year exceeded all forecasts, providing a major boost to the national revenue,” the COPF report stated, highlighting that authorities had initially projected Rs. 450 billion from vehicle-related taxes, only to see collections reach Rs. 650 billion, an extraordinary jump from the Rs. 50 billion increase recorded in 2024.
However, this windfall is expected to taper off in 2026. According to the COPF, tax revenue from vehicle imports is projected to decline to around Rs. 550 billion, as import volumes are forecast to drop from US$ 1.5 billion in 2025 to $1.2 billion in 2026. By late October 2025, $1.8 billion in vehicle import Letters of Credit had been opened, with $1.2 billion cleared, leaving the remainder likely to spill over into 2026.
Several market factors are behind this anticipated slowdown. The reduction of the Loan-to-Value ratio for motor vehicles from 60 to 50 per cent and a saturated demand following the 2025 purchase surge are expected to suppress fresh imports.
“Many buyers who could afford luxury and high-value vehicles completed their purchases last year,” said a Colombo-based vehicle importer. “Dealers are now holding larger stockpiles, which could reduce new imports for months to come.”
Several leading motor traders have also issued warnings to consumers about non-authorised vehicle imports. “While the upfront price may seem attractive, many of these vehicles come with hidden risks such as accident histories, manipulated mileage readings, and no access to genuine parts or warranties,” said a leading dealer. “Purchasing through unofficial channels may save money short-term, but could cost heavily in repairs and safety concerns later.”
Policy and regulatory challenges have further complicated imports. Importers struggled to comply with new rules such as calculating vehicle age based on manufacture date rather than import date, and adjusting to the increased effective customs import duty of 30 per cent introduced from February 2025. “These changes require constant adaptation and increase operational costs for importers,” noted another Colombo-based trader.
The structure of vehicle taxes is also shifting. Excise duty, which swelled to Rs. 396 billion in 2025 due to the temporary 50 per cent surcharge on top of the standard 20 per cent customs duty, is expected to fall to Rs. 266 billion in 2026 if the surcharge is not extended.
Other taxes, including VAT on imports and the luxury vehicle tax, are projected to remain stable. Budget 2026 introduces a Special Sales and Turnover Tax (SSCL) of 2.5 per cent on vehicles from April, which could partially offset revenue losses from the phasing out of the surcharge. “Revenue is high, and policymakers must tread carefully,” he added. “Market demand, regulatory shifts, and consumer behaviour will all determine how much the government can rely on this sector in 2026.”
The COPF cautions that despite the sector’s historic contribution, its future role in Sri Lanka’s fiscal stability remains volatile, underscoring the need for balanced revenue strategies amid changing market dynamics.
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