🚗 CMTA Urges Scraping of 15% Vehicle Depreciation Rule Amid Rs. 120 Bn Revenue Leakage Risk

The Ceylon Motor Traders’ Association (CMTA) has urged the Government to abolish the 15% vehicle depreciation rule ahead of Budget 2027, citing massive tax revenue losses and market distortions in the automotive sector. • Overall Revenue Impact: The CMTA estimates tax revenue leakage at Rs. 40 Bn in 2025 and over Rs. 54 Bn for Jan–Jul 2026, putting full-year 2026 losses on track to surpass Rs. 120 Bn. • Customs Valuation Loophole: Under Customs Gazette 1971/10 (2016), non-brand-new vehicles get an 85% transaction valuation, allowing "effectively new" foreign-registered vehicles to enter at a 15% lower Customs valuation than official imports. • Market Breakdown: Authorized distributors importing brand-new vehicles represent only 30% of total imports, while 70% enter via informal channels benefiting from the depreciation allowance. • Model-Specific Tax Losses: • Toyota Raize: Estimated leakage of Rs. 2 Mn per unit (~Rs. 18.7 Bn total across 8,900 units). • Honda Vezel: Duty gap of Rs. 1.8 Mn per vehicle. • Kia Models: Tax advantage of ~Rs. 1.5 Mn per vehicle (~Rs. 1.5 Bn total loss). • Luxury Vehicles ($50,000+): Government loses up to Rs. 8 Mn per vehicle. • Proposed Solutions: Immediate removal of the 15% depreciation rule or an interim tiered system capped at 10% based on age (0-6 months, 6-12 months). The CMTA also highlighted policy instability, including fluctuating LTV ratios (ranging from 40% to 60%), which hurts investment, business planning, and consumer confidence.