Vehicle import loopholes targeted with stricter LC exemption rules

Importers relying on early banking documents to bypass the government's newly extended 50 percent vehicle import duty surcharge face a precarious path forward due to strict regulatory conditions that threaten to disqualify numerous shipments.

The Ministry of Finance, Planning and Economic Development outlined strict criteria for vehicles imported under Letters of Credit established on or before May 15, to close trade loopholes.

The departmental order, issued under Section 10A of the Customs Ordinance, extends the surcharge on the applicable Customs Import Duty on a both General and Preferential basis, taking effect from August 15 to December 31.

President Anura Kumara Dissanayake signed the document in his capacity as the Minister of Finance, Planning and Economic Development, stipulating that while the pre-May Letter of Credit exemption remains in place, authorities will immediately revoke it if import documentation undergoes modification.

The order explicitly states the surcharge applies if amendments occur to the number of vehicles, vehicle identification number, description of the vehicle, technical specifications, or the date of expiry of the Letters of Credit.

Furthermore, authorities enforced a strict shipping deadline dictating that consignments automatically incur the levy if the shipped on board date of the Bill of Lading or Airway Bill falls after November 15, 2026.

Beyond private passenger cars, the tax net casts widely across the commercial sector, heavily impacting transport and logistics operators.

The detailed schedule lists motor vehicles for the transport of ten or more persons, including the driver, directly affecting bus fleets and public transport networks.

Similarly, motor vehicles for the transport of goods are subject to the levy, which is expected to inflate fleet renewal costs for haulage and freight distribution companies.

The measure also presents a significant hurdle for the country's transition toward green mobility, as the 50 percent surcharge applies uniformly to fully electric and hybrid vehicles across all motor capacity brackets.

By taxing these environmentally friendly options at the same rate as traditional combustion engines, the price increase threatens to stall local electric vehicle adoption rates and suppress demand for cleaner alternatives over the remainder of the year.

This temporary surcharge extension comes against the backdrop of Sri Lanka's gradual relaxation of motor vehicle import restrictions, which initially faced halts to preserve foreign currency reserves during the economic crisis.

The government initially imposed this 50 percent surcharge for three months starting mid-May to discourage a sudden rush of vehicle imports and stabilise the exchange rate.

With the extension now running until the end of the year, authorities aim to carefully manage foreign exchange outflows and boost state revenue while phasing in the broader vehicle import mechanism.