FINANCIAL CHRONICLE – On the initial day of implementation, over 9,400 letters of credit (LCs) were issued for the import of new personal vehicles in Sri Lanka, according to Deputy Finance Minister Anil Jayantha. This surge occurred despite the introduction of a temporary 50 percent surcharge on Customs Import Duty (CID), which took effect on May 16 and is intended to limit imports and stabilize the depreciating rupee.
Deputy Minister Jayantha reported that on May 18, the first business day following the surcharge’s implementation, a total of 9,429 LCs were opened. His remarks come in response to claims from opposition parties alleging that two companies had insider information, resulting in the preemptive ordering of 4,000 vehicles by securing LCs on May 15, just before the government’s announcement.
“This is completely inaccurate. On that date, only 1,782 letters of credit were opened,” Minister Jayantha stated during a media conference in Colombo on Friday (May 22). “Such statements aim to mislead the public and artificially inflate vehicle prices.”
He further questioned how, if there had been a leak of information, the number of LCs issued under the new vehicle tax regime would rise to 9,429 on May 18, suggesting that a rational market would show a significantly lower figure if that were the case. “This spike is primarily due to the speculative behavior of vehicle importers, not from any information leak,” he asserted.
Analysts have highlighted that the Central Bank’s decision not to increase monetary policy rates, alongside the excess liquidity resulting from its dollar purchases in the market, has contributed to the increased vehicle imports at lower borrowing costs.
After years of stringent bans on motor vehicle imports that began in 2020, Sri Lanka’s partial easing of these restrictions in early 2026 led to a dramatic rise in import expenses, necessitating state intervention. The government introduced the temporary 50 percent surcharge on the existing 30 percent Customs Import Duty for vehicles in response to an unexpected US$ 2 billion increase in import costs over two months, exacerbated by rising global oil prices and significant maritime logistical issues due to ongoing conflict in the Middle East.
This measure imposes a 50% surcharge on both general and preferential duty rates for various types of vehicles, including passenger cars, vans, and electric or hybrid models, while excluding two and three-wheelers. This directive is expected to result in an approximate 15% price increase for immediate buyers.
The primary aim of this fiscal adjustment is to safeguard the country’s diminishing foreign reserves, which fell from US$ 7 billion in March to US$ 6.76 billion by the end of April. By encouraging non-essential vehicle purchasers to delay buying decisions, the government seeks to reduce demand for foreign exchange and halt the rapid depreciation of the Sri Lankan rupee, which had plummeted by over 6 percent, exceeding 350 rupees per US dollar by May 21.
According to Minister Jayantha, Sri Lanka issued LCs for 624,000 vehicles between January 1, 2025, and the end of April 2026. The government has projected that the monthly expenditure on vehicle imports will be around US$200 million following the imposition of the recent 50 percent surcharge. (Colombo/May 22/2026)
