The vehicle import tax regulations introduced in Sri Lanka for 2026 include new provisions governing vehicle imports, the Green Tax, and the concessional tariff system.

Vehicle imports were largely suspended over the past few years due to the country's economic conditions and foreign exchange crisis. However, the government began gradually easing these restrictions in 2025.

By 2026, a new tax policy and legal framework for vehicle imports had been introduced. According to the government, these measures are intended to support the recovery of the vehicle market while promoting environmental objectives and more efficient energy consumption. The Green Tax forms part of the new framework.

A component of Sri Lanka's 2026 vehicle import tax system is the Green Tax policy. The policy imposes higher taxes on conventional petrol and diesel vehicles that produce higher emissions and carbon output, while providing tax concessions for environmentally friendly vehicles. Under the Green Tax system, concessional tariff rates have been introduced for fully electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and vehicles equipped with e-smart technology.

While the cumulative tax burden for importing a conventional petrol or diesel vehicle into Sri Lanka remains between 300% and 400%, the government has reduced the total tax burden for electric vehicles to between 100% and 200%. According to the government, this policy is intended to reduce national fuel consumption and encourage the adoption of green energy technologies.

The 2026 tax amendments incorporate the Green Tax concept into the Luxury Tax framework. The Luxury Tax is generally calculated based on a vehicle's Customs value (CIF value). The government has set the Luxury Tax threshold for petrol and diesel vehicles at Rs. 5 million (US$ 52,140). For hybrid vehicles, the threshold has been increased to Rs. 5.5 million, while for fully electric (EV) and e-smart vehicles, it has been raised to Rs. 6 million. Consequently, importers of these vehicles are required to pay Luxury Tax only on the portion of the vehicle's value that exceeds the applicable threshold.

Several additional tax amendments were also introduced in 2026. From April, previous tax exemptions on vehicle imports were withdrawn, and a 2.5% Social Security Contribution Levy (SSCL) was introduced for vehicles. As this levy is calculated on the total tax base after all other taxes have been applied, it directly affects the vehicle's final landed cost.

Another tax amendment was the introduction of a 50% temporary surcharge on Customs Import Duty, effective from May 16th, 2026, for a period of three months. According to the government, the measure was introduced to reduce pressure on foreign exchange reserves following a sharp increase in vehicle imports. Despite these revisions, the preferential tariff structure for green vehicles remains in place.

For conventional vehicles, excise duty is calculated using different bands based on engine capacity (cc). Under the 2026 Green Tax system, taxes for EVs and e-smart vehicles are calculated according to the motor's maximum power output in kilowatts (kW) and the vehicle's year of manufacture. The government has also introduced stricter vehicle age limits for imports. In general, import permits are granted only for brand-new vehicles that are one year old or less, and for vehicles that are no more than three years old.

According to the government, restricting the import of older vehicles is intended to reduce vehicle emissions and limit foreign exchange expenditure on maintenance and spare parts. The 2026 tax system also forms part of the government's broader energy policy. Vehicle taxation in Sri Lanka follows a compound tax structure, under which taxes are calculated sequentially. Customs Import Duty (CID) is first calculated based on the vehicle's CIF value, after which the surcharge is applied. Excise duty and Luxury Tax are then added to the accumulated amount. Finally, the 2.5% SSCL and 18% VAT are calculated on the resulting total.

Because the base tax rates and excise duty applicable to green and electric vehicles are lower than those for conventional vehicles, the concessional system reduces their final cost relative to petrol and diesel vehicles. The Green Tariff concession system contributes to the price difference of several million rupees between a petrol vehicle and an electric vehicle of the same class when they enter the market. The publication advises prospective vehicle importers in Sri Lanka to familiarise themselves with the latest tax regulations and Green Tax concession schemes before importing a vehicle during 2026.

Compared with the higher tax burdens and maintenance costs associated with conventional fuel-powered vehicles, electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs) may offer lower long-term operating costs.

When selecting a vehicle, importers should consider its year of manufacture, the motor's kilowatt (kW) output, the quality of its battery technology, and the manufacturer's warranty coverage. As government tax policies and temporary surcharge measures may change, it is advisable to obtain updated calculations from a vehicle importer or customs clearing agent based on the latest official gazette notifications and Customs tariff schedules before ordering a vehicle or opening a Letter of Credit (LC). The Green Tax concession framework provides tax incentives for environmentally friendly vehicle technologies under the current import tax structure.