Sri Lanka eases vehicle import ban, but can people afford a new car?

Sri Lanka is gradually easing its ban on the import of some vehicles, signaling a return to normalcy after the severe economic crisis that led to the ousting of the president. Starting February 1st, the import of buses, trucks, and multi-purpose vehicles will be permitted, with restrictions on other vehicles expected to be gradually lifted. Many Sri Lankans are awaiting the government's removal of import bans on private cars, sports utility vehicles, and the three-wheeled vehicles commonly used as taxis.

However, some are questioning who will be able to afford new vehicles, given that shortages of new vehicles, a weak currency, and high taxes have caused prices to skyrocket. In 2022, Sri Lanka faced a severe foreign exchange shortage, leading to the country's first-ever default on its obligations to creditors. The island nation of 22 million people was plunged into turmoil, facing acute shortages of fuel, food, and medicine. Mass anti-government protests led to the resignation of then-President Gotabaya Rajapaksa a few months later.

Colombo negotiated a $2.9 billion bailout with the International Monetary Fund, while Rajapaksa's successor implemented austerity measures, including raising taxes and ending energy subsidies. Since then, the country's financial situation has improved, and the economy is gradually emerging from its difficulties. The announcement of the lifting of the vehicle import ban has generated much discussion among Sri Lankans, who have been waiting years to buy new cars or vans.

Murtaza Jafeerjee, chairman of the Colombo-based economic think tank Advocata, told the BBC that he believes the move is long overdue. "Vehicle imports would not only increase government revenue, but also stimulate other economic activities, such as auto financing, dealer revenue, car repairs, and other related activities, creating employment opportunities," he said. However, the country's Information Minister, Nalinda Jayatissa, said at a press conference on Tuesday that the country was "proceeding very cautiously because we do not want a surge in imports that will deplete our foreign exchange reserves."

The country has no major car and truck manufacturing plants, and almost all vehicles rely on imports, many from countries like Japan and India. There is now also strong interest in Chinese cars, particularly electric vehicles. The price of used cars in Sri Lanka has skyrocketed, with some models now costing two to three times what they did before the ban. The restrictions have been particularly difficult for people like Gayan Indika, who provides vehicles for weddings and also works as a part-time taxi driver. "I want to buy a new car so that I can work and restart my private taxi rental business. Without a car, without transport, I have lost a lot of income," he said.

In a country with underdeveloped public transport, cars can be crucial, explained Sasikumar, a software professional from the central city of Kandy. "Since we don't have a good public transport system, cars are essential for traveling to other parts of the country. The government should either lift the ban on cars or improve public transport." Sri Lanka imported vehicles worth around $1.4 billion in the year before the ban. This year, the central bank has said it plans to allocate up to $1 billion for vehicle imports, but says the funds will be released gradually.

Arosha Rodrigo of the Sri Lanka Automobile Importers Association and his family have been running a car dealership for more than four decades. Before the ban, the company imported around 100 cars a month. They have not been able to import a single car since the restrictions came into effect. He noted that even if the ban is further relaxed to allow the import of passenger cars and other vehicles, many will not be able to afford them due to increased taxes and the weak Sri Lankan currency. The government has significantly increased the excise duty on imported vehicles, both new and used, to 200% and 300%, depending on engine size.

In addition to the excise duty, any vehicle imported from abroad is subject to an 18% value-added tax. The price of imported vehicles will also be affected by the weakness of the Sri Lankan rupee against major world currencies such as the US dollar. These soaring costs have put off people like school teacher R Yasodha. "We have been waiting a long time to buy a vehicle. But if we calculate the taxes and prices, the cost of an average-sized car has doubled from 2.5 million rupees ($8,450; £6,800) to 5 million rupees," she told the BBC. "This will be a huge amount for us."