📈 Advocata Urges Vehicle Tax Regime Overhaul Amid Registration Shift

Think tank Advocata Institute has submitted proposals to the Finance Ministry calling for the replacement of Sri Lanka's complex engine-capacity-based vehicle taxation with a progressive value-based system to eliminate market distortions and encourage cleaner technology. Key Tax Critiques & Impact • Tax Anomalies: Current engine capacity-based duties can push levies on hybrids close to 300% of their import value. For example, a Toyota RAV4 hybrid valued at Rs. 11 Mn faces over Rs. 32 Mn in taxes, resulting in just 16 registrations between January 2025 and May 2026. • Proposed Reform: Shifting to a progressive ad valorem model (taxing incremental value above thresholds) to ensure transparency, prevent under-invoicing, and maintain revenue neutrality. May 2026 Vehicle Registration Trends • Total Rebound: Total vehicle registrations rose to 62,776 units in May from 51,156 in April, driven by two- and three-wheelers. • Three-Wheelers & Two-Wheelers: Three-wheeler registrations jumped over fourfold to 5,669 units (from 1,355 in April). Two-wheelers grew to 43,842 units. • Motor Cars: Rose to 4,738 units (from 3,238 in April). Brand-new registrations more than doubled to 1,199 units, led by entry-level EV models from BYD (468 units) and BAW (553 units). • Hybrids: Registrations increased to 2,745 units (from 2,316 in April), dominated by Honda and Toyota SUVs. • EV Sector Decline: Total EV registrations dropped to 6,248 units in May from 8,098 in April, primarily due to a slowdown in electric two-wheelers, which still led the segment at 5,013 units. Cash purchases dominated, with financing penetration dipping to 34.2%. _Data based on JB Securities market tracking._