The Hon. (Ms.) Lakmali Hemachandra, Attorney-at-Law

¶ 01 Hon. Presiding Member, thank you for the opportunity.

¶ 02 This Gazette we debate today was issued on 31 January 2025. I mention the date because from this morning several Opposition MPs spoke as if this were a new Gazette, saying we lack a proper tax policy and that we reverse Gazettes. That is not so.

¶ 03 When the Government decided to allow vehicle imports, we simultaneously formulated the tax policy. That policy was gazetted on 31 January 2025. As a money regulation, under the Constitution and the law it must be placed before Parliament for approval. Accordingly, it was discussed at the Committee on Public Finance last week and is now before Parliament.

¶ 04 Some Opposition MPs speak without any understanding of the process, treating this as a newly issued Gazette. I must clearly state this is the tax policy decided when allowing imports, now presented for Parliamentary approval.

¶ 05 This Gazette contains three elements. The most notable two relate to electric vehicles: the imposition of an Excise Tax. Generally, excise taxes are imposed where there is a potential negative externality. However, the regulation here doubles the existing excise on EVs.

¶ 06 This has been misinterpreted repeatedly as “discouraging” EVs and as contrary to renewable energy policy. But the reason for doubling EV excise is this: there has been a global shift in vehicle production away from fossil fuel vehicles towards EVs. EVs are increasingly used and imported into Sri Lanka. As volumes rise while EVs carry relatively lower overall tax incidence, government revenue declines. To address the revenue gap associated with higher EV volumes, the excise was increased.

¶ 07 Even after considering VAT, Customs Duty, and Luxury Tax, the total tax burden on EVs remains lower than on petrol or diesel vehicles. Therefore, this does not discourage EV usage. With market shifts and changing consumer preferences, if revenue falls, this Gazette allows us to recover it. For example, Luxury Tax is about 120 percent of value on diesel, 100 percent on petrol, and around 60 percent on EVs. So one must consider total tax incidence.