The government is closely monitoring the potential impact of lifting restrictions on the import of vehicles for personal use, scheduled to take effect next month, on foreign exchange outflows and the stability of the rupee.
A senior Treasury official stated that while the primary aim of easing the vehicle import ban is to stimulate economic growth and increase tax revenue, the move carries inherent risks. “The extent of its impact on foreign exchange outflows and rupee volatility remains uncertain and can only be assessed after the restrictions are lifted,” the official explained.
A proposal to lift the ban will be submitted to the Cabinet later this month, following which it will be gazetted and implemented starting February 1. This policy adjustment is a condition stipulated by the International Monetary Fund (IMF) as part of its Extended Fund Facility for Sri Lanka. Once implemented, the IMF will evaluate the move in its upcoming review of the program.
The official noted that the government has informed the IMF of its contingency plan, which includes the possibility of reintroducing certain restrictions if foreign exchange outflows or rupee depreciation become unmanageable.
Under the revised import policy, vehicles up to five years old will be permitted for some categories, while others will be limited to models no older than three years. However, the final decision on these specifications is yet to be finalized.
Imported vehicles will continue to be subject to a tax of up to 300%, with no plans to reduce this levy, according to the official. Despite the high tax rate, the government anticipates generating up to $1 billion annually from vehicle imports.
Additionally, the government is considering addressing the backlog of approximately 22,000 vehicle licenses issued prior to the economic crisis. “In the second phase of lifting import restrictions, we may allow these vehicles to be imported, provided the exchange rate remains stable,” the official remarked.
The policy shift reflects the government’s cautious approach to balancing economic recovery efforts with the need to safeguard foreign exchange reserves and maintain currency stability.
