The Hon. (Dr.) Harshana Suriyapperuma — Deputy Minister of Finance and Planning

¶ 01 Hon. Speaker, thank you for the opportunity.

¶ 02 Hon. Speaker, the Order published in Gazette Extraordinary No. 2421/42 dated 31 January 2025 is before the House today. In carrying out this task, the present Government has prepared a structured, phased approach to resume vehicle imports: first, public passenger transport buses; second, vehicles required for production-related transport; and third, private vehicles. This phased resumption is being implemented in a country whose economy had been severely disrupted.

¶ 03 We recognized that at the start, higher tax rates applied to petrol and diesel vehicles, whereas a comparatively low rate applied to electric vehicles. If those relative rates create a distortion as imports resume, the anticipated revenue may fall and the burden on our reserves may rise. Therefore, the Government has prudently adjusted rates on petrol/diesel and on EVs.

¶ 04 Excise Duty here is not ad valorem on vehicle value. It is assessed per category—petrol, diesel, hybrid, or electric—using factors tied to environmental emissions. Higher rates are applied to diesel and petrol; mid-level to hybrids; and lower to EVs. For ICE vehicles, duty is computed per cubic centimetre capacity under a formula; for EVs, per kilowatt capacity under bands specified in the Order.

¶ 05 For illustration, under HS 8703, EVs under two years with only an electric motor have a per-kilowatt rupee charge. While duty is not a percentage of value, we can present approximate percentage equivalents for comparison. Roughly, where petrol vehicles over Rs. 5 million (in the ≤1500 cc range) faced about 80 percent, EVs in the ≤100 kW band faced about 15 percent. For petrol/diesel under Rs. 13 million, combined duties approximated about 195 percent, while EVs were around 22 percent. To reduce such large gaps, this Order revises EV bands such that, on a CIF basis, approximate composite burdens are about 30 percent for EVs up to Rs. 5 million, about 44 percent up to Rs. 13 million (vs roughly 195 percent for petrol), and about 134 percent above Rs. 18 million (vs roughly 211 percent for petrol). These are indicative comparisons to explain the relative changes.

¶ 06 Our objective is to stabilize the economy and restart stalled development while safeguarding reserves and generating essential revenue. Vehicle import duties are a key revenue source. We must also consider both domestic and global conditions. Economic challenges worldwide necessitate a pragmatic macroeconomic policy.

¶ 07 Economic challenges across the world would not help the country at any given time. Therefore, we need to formulate a macroeconomic policy that stabilizes the Sri Lankan economy, considering the realities we face on a day-to-day basis. Through this we aim to minimize pressure on reserves, support importers and exporters, and still allow those who can afford vehicles to do so while contributing fairly to revenue. Post-implementation indicators—projected duty intake, Letters of Credit opened—suggest this calibrated approach is working, allowing essential vehicles to arrive with minimal reserve pressure and improving Government revenue as anticipated.

¶ 08 Amidst global challenges, Hon. Speaker, we are determined to make sure that we provide, with timely interventions and necessary discussions with the appropriate parties relating to global challenges, the necessary facilitation for our business community, the private sector and particularly to the SME sector of the country, ensuring that adequate financing is available to them and that they are able to access financing at an affordable level. Sir, that is a very important step. During the time the current Government has been managing the economy, the interest rate of the country has stabilized and it came to a single-digit level on many occasions. With this reduction of rates, we would like particularly the State banks and, of course, the private banks also to provide the necessary assistance, the push and support to the SME sector, to this vulnerable segment of the business community.

¶ 09 In addition to that, Sir, inflation has been contained continuously, allowing consumers to access necessary items at an affordable price. That is not the best practice, considering the level of prices that was there earlier. We try to find out what amendments, what changes and facilitations needs to be done to increase that accessibility.

¶ 10 I will take one more minute, Sir.

¶ 11 To ensure producer competitiveness, we need to make sure that our exporters are able to export goods at a competitive rate. By making sure that the required dollar income is brought into the country, we would be able to repay our debt. We are sitting on a mountain of debt due to the bad and wrong economic policies adopted and borrowings made at commercial rates by the previous governments, who are now preaching to us from the other side. We need to ensure that this issue is contained and a solution is provided for. Therefore, the current Government has implemented many necessary solutions, considering the global context as well. I am sure we would be able to explain more during the Debate.

¶ 12 Thank you very much, Sir, for the time allotted.