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Sri Lanka mulls quota, license raj for car imports after printing money

ECONOMYNEXT – Sri Lanka has asked vehicle importers to come up with a plan such as a quota or alternative foreign exchange financing to consider relaxing an import ban slapped in 2020, an official said.

Sri Lanka slapped import controls and completely banned motor cars, which are taxed at high rates, after record money printing triggered currency depreciation and a steady erosion of forex reserves.

Importers of brand new and used cars had met the Finance Ministry and asked for relaxation of the import control this week.

Among the suggestions were a quota and a license system to limit imports to long term players, Treasury secretary S R Attygalle said.

There were ‘mushroom importers’ who get a temporary tax PIN to import and then do not pay income tax on profits, he said.

Authorities had asked them to come up with a plan such as alternative financing which will not pressure the currency, he said.

“We have a foreign exchange problem,” he said. “Up to now we have relaxed the controls of many items.

“Some can be imported on 90 day credit, some on 180 day credit. It is only cars among big ticket items that are still controlled.”

In Sri Lanka there is a strong Mercantilist belief that monetary instability involving currency depreciation and balance of payments troubles are caused by imports and not the liquidity injections of a soft-pegged central bank.

Analysts had warned that as credit picked up, imports will recover and as Treasury bill auctions fail, an overall balance of payments deficit was almost inevitable.





The last administration raised taxes and also printed money to target an output gap triggering two currency crises depreciated the currency wantonly in 2017 to target a real effective exchange rate and bust real wages, and earned its reward at the ballot box. (Colombo/Mar13/2021)

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