Permits, privilege, and the price we all pay

By Thamirran Chuciyanthan

Originally appeared on Daily FT

“There will be no permits. The permit culture must end in Sri Lanka.” This was the resounding declaration from President Anura Kumara Dissanayake as he presented the 2026 Budget proposal. The plan to supply vehicles to Members of Parliament (MPs) on a strictly “return-after-term” basis echoes a long-overdue escape from a system that has, for decades, quietly drained public coffers. It is a system that has rewarded privilege over performance, entrenched inequality, and undermined the credibility of the state.

The Advocata Institute welcomes this decision. It is a vital critique of a “permit culture” that is a remnant of a feudal past, not a modern economy. A permit is, by definition, a special approval granting selected groups privileged access to benefits unattainable to the general public. It creates an inherently regressive, two-tier system: one for ordinary citizens, and another for those afforded special treatment.

When we examine the case of vehicle permits in Sri Lanka, the dynamic becomes disturbingly stark.

The anatomy of an exemption

To understand the magnitude of this reform, one must understand the distortionary nature of the “permit.”

According to Finance Ministry officials, since 2020 alone, 25,508 duty-free vehicle permits have been issued to Government employees. Even during the economic constriction of recent years, the flow continued: 6,062 permits in 2024 and 2,043 in 2025.

In Sri Lanka, vehicles are expensive because of import tax – a policy imposed and strengthened by Parliament since the 1960s. Issuing exemptions (permits) is, therefore, a fundamentally flawed rationale. It’s the equivalent of penalising an entire class, with no basis for the punishment to begin with, before releasing the favoured students from sanction – all the while cleverly disguising the exemption as a so-called “benefit”. And who are the first beneficiaries? The very policymakers responsible for the high taxes.

Evolution of privilege: From compensation to commodity

Originally introduced as compensation for low nominal salaries, the permit system morphed into a transferable asset and a reliable source of campaign financing. By importing vehicles at the fraction of its taxable price, or by selling the permit itself, MPs were able to generate substantial profits, untaxed, to fund electoral activities. In the decades that followed, eligibility expanded well beyond Parliament. The privilege was extended to senior civil servants and a wide array of public-sector professionals, including but not limited to doctors, university professors, State engineers, and directors of State corporations.

Eventually, permits had become a normalised perk in the public sector, issued as frequently as once every five years. However, this perk was driven not by performance gains, but lobbying pressure. No circular or audit report has ever tied permit eligibility to measurable performance. Entitlement was purely based on title or years of service, thus, creating a dangerously perverse incentive structure.

The result? Permits turned into a predictable political asset, attached to a significant transferable cash value. As vehicle import taxes increased over the years, the value of the permit increased proportionally. The permit itself became an appreciating asset, detached from its initially stated purpose, and thus began the trading of permits too.

In December 2010, Transparency International Sri Lanka revealed that the majority of 65 newly elected Parliamentarians, including 2 Cabinet Ministers, sold their duty-free vehicle permits for as much as Rs. 17 million each, when adjusted for inflation using Department of Census and Statistics figures, that windfall is equivalent to which adjusted for inflation sits at approximately Rs. 48 million today.

In December 2012, in an event the Sunday Times classified as a “Christmas Bonansa for MPs,” the Government granted permission for MPs to openly sell their duty-free permits. At the time, they sold for Rs. 20 million each, which adjusted for inflation sits at approximately Rs. 50 million today.

Consequently, we saw a worsened repetition of this in 2016.

Nagananda Kodituwakku is an attorney-at-law and rights activist, who formerly headed the Customs Revenue Task Force. On 28 October 2016, he wrote to the Commissioner General of Motor Traffic, naming 75 MPs who imported luxury vehicles, including BMWs, Mercedes-Benz, Land Cruisers and even a Hummer. The total tax waived per MP ranged from Rs.30 million to Rs. 44.7 million. In today’s terms, this range approximately translates to between a staggering Rs. 66 million and Rs. 98.5 million.

The numbers speak for themselves.

Since the permit artificially lowers the price of a vehicle for a specific group, they benefit from a subsidised (concessional) price. The relative price of a vehicle falls for members of this group, so demand rises, but this rise is not attributed to market forces. The sudden rise in vehicle purchases among permit holders is not a reflection of genuine need; it is a rational response to a market distortion. They buy not because they must, but because the tax exemption makes it financially irrational not to.

Mechanics of the loss

When a permit holder imports a vehicle, the State suffers a “double blow” to its revenue stream. First, the Treasury forfeits the revenue at the border. The list of waived taxes is exhaustive and compounding:

1. Customs Import Duty (CID)- Calculated as a % of Cost, Insurance and Freight (CIF)

2. Excise Duty (XID)- Calculated using engine capacity, fuel type, vehicle category

3. Social Security Contribution Levy (SSCL)

4. Luxury Tax (LTMV) – Applied when value or engine capacity exceeds specific thresholds

5. VAT (charged on a cascading* tax base: CIF + CID + XID + LTMV)

*This means this tax is calculated on top of the previous taxes, not just the original value of the vehicle.

Second, the State loses on income tax. In most tax systems around the world, law requires the benefit to be assigned an imputed monetary value, so that it may be taxed, just like income. But Sri Lanka’s duty-free vehicle permits have escaped this entirely.

The cost to the citizen

Sri Lanka’s cascading, multi-layered tax structure drives effective import taxation on most passenger vehicles into the 125%–250% range, with the Vehicle Importers Association of Sri Lanka placing some models in the 200%–300% bracket. It is, by any comparative standard, one of the most punitive vehicle-tax regimes in the world.

The macroeconomic consequences are visible everywhere:

Inequality: Middle-income families are priced out of car ownership; mobility becomes a privilege, not a right.

Inefficiency: High tariffs keep the national fleet old and costly to maintain. Older vehicles burn more fuel, produce higher emissions, and compromise road safety. As a result, public transport absorbs pressure it was never designed for

No industrial rationale: Sri Lanka does not manufacture cars, so these tariffs serve no protectionist purpose. These taxes function solely as revenue extraction, and our citizens and economy pay the price.

Tax compliance deteriorates. Consumer choice shrinks. Economic participation weakens.Productivity sours.

A future without exemptions

The move to a “return-after-term” model is the correct economic and ethical step.

Looking forward, the Government must adopt a centralised fleet-management framework. We should look to models like Australia’s, which utilises a single regulated system ensuring consistent pricing, transparent leasing, and the timely replacement of aging units to reduce maintenance costs.

The President’s declaration promises an end to a distortionary era. However, the future relies on vigilance. Citizens, media, and Parliament must ensure this commitment is honoured through transparent procurement and a permanent end to exemptions. The “permit culture” was a price the economy could never afford; it is time we stopped paying it.

Sources

Duty-Free Permits system under scrutiny | Print Edition - The Sunday Times, Sri Lanka

1991 Public Administration Circular No: 14/91

Scheme for Issuance of Motor Vehicle Permits on Concessionary Terms Nos. 01/2016, 01/20

Transparency International Sri Lanka

UNP MPs silent over daylight robbery: Sale of duty free car permits? | The Sunday Times

List of 75 MPs and their Luxury Vehicle Imports | Colombo Telegraph

Ceylon Public Affairs - Vehicle Import Tax Structure

Chapter 87, Motor Vehicle 2025 Tariff Guide

Quantification of Values for Non-Cash Benefits in calculating Employment Income

Ceylon Public Affairs - Vehicle Import Tax Structure

Chapter 87, Motor Vehicle 2025 Tariff Guide

Quantification of Values for Non-Cash Benefits in calculating Employment Income

Fleet Management - The Morning

Appendix

CCPI | Department of Census and Statistics

“Today” = Oct 2025. For inflation calculations, we chain-link across base changes:

1. Within a base, inflation factor between month A and month B =

Factor = Index(B) / Index(A) (same base series).

2. Across base changes, pick a bridge month that appears in both series. Multiply factors in sequence (“chain link”).

3. Multiply the historical amount by the product of factors to get the “today” value.

(The author is an Economic Researcher at the Advocata Institute. The opinions expressed are the author’s own.)

SOE closure is good, but is only the beginning

By Dhananath Fernando

Originally appeared on the Morning

The Government’s recent decision to shut down 33 State-Owned Enterprises (SOEs) is commendable and a step in the right direction. Sri Lanka has far too many SOEs, with the State entangled in almost every sector imaginable – aviation, retail, banking and finance, agriculture, ports, insurance, transport, energy, and even chemical production.

What many people do not realise is that government involvement in business is not just inefficient. It is at the heart of our debt and economic crisis. SOEs are heavily indebted, crowd out credit that should go to the private sector, and operate in areas where private businesses could be far more productive.

Once upon a time, there was an argument that the government should be in business to ensure a ‘level playing field.’ That argument has long expired. Today, SOEs do not level the field, they tilt it. With mounting losses, inefficiency, and distortions, they have undermined competitiveness rather than protected it.

The State already has a stake

It is worth remembering that the Government already has a built-in stake in every business through taxation. Corporate tax is 30% of profits, and once businesses cross the Value-Added Tax (VAT) threshold, a further 18% is levied on value addition. In other words, the State captures a significant share of private profits without having to own or operate businesses.

The problem is that Sri Lanka has too few private businesses because the State has occupied their space and run it unproductively.

The real giants of losses

Closing 33 SOEs is good, but it is only the beginning. Sri Lanka has more than 500 SOEs if one includes subsidiaries and sub-subsidiaries. Some even operate as departments – railways and postal services, for instance, which are technically not SOEs but still run as commercial operations.

In reality, around five large SOEs account for 80% of the losses. These are:

• Ceylon Electricity Board (CEB)

• Ceylon Petroleum Corporation (CPC)

• National Water Supply and Drainage Board (NWSDB)

• Sri Lanka Transport Board (SLTB)

• SriLankan Airlines

Restructuring these giants is critical. Attempts have already been made with the CEB, but as this column has previously argued, reform has been slow and the hurdles to attracting capital remain high.

SriLankan Airlines is another pressing case. Our sovereign credit rating remains partly hostage to the airline’s bond restructuring. The CPC and SLTB are not far behind in the severity of their problems.

A web of loss-making interconnections

One reason Sri Lanka went bankrupt was the unhealthy web of financial interconnections between these SOEs. When the CEB sold electricity below production cost, it borrowed fuel from the CPC, making the CPC loss-making as well.

The CPC, in turn, tried to recover losses by charging SriLankan Airlines higher-than-market prices for jet fuel. The airline was compelled to buy from the CPC since both were Government-owned and it too bled losses.

When all three made losses, they turned to the People’s Bank and Bank of Ceylon for loans, exposing depositors’ money to undue risk. With large amounts of credit guaranteed by the Treasury, private businesses were crowded out both by lack of funds and unfair competition.

A tilted playing field

The distortion is not confined to energy and transport. In insurance, for example, the law required all companies to split life and general insurance operations. The only exception? Sri Lanka Insurance – the State player.

In gaming, the new regulatory authority does not cover the National Lotteries Board or the Development Lotteries Board and private players are barred from entering the lottery market.

In ports, the problem is even more blatant. The Sri Lanka Ports Authority is both regulator and operator. It owns shares in private terminals such as Colombo International Container Terminal (CICT) and South Asia Gateway Terminal (SAGT) while running its own Jaya Container Terminal. It is regulator, competitor, and shareholder all rolled into one. That makes the very idea of a level playing field a joke.

Mixed signals

While shutting down 33 institutions, there are also news reports of the Government expanding into new businesses, such as opening outlets for sugar sales. These mixed signals send the wrong message.

The principle must be simple: the Government should focus on its core mandate – ensuring the rule of law – and let the private sector drive commercial activity. If necessary, regulate. But only when necessary. The State should take its 30% tax share, make tax administration efficient, and leave the rest to entrepreneurs.

The way forward

The next step is the passage of the proposed SOE holding company bill. This will bring most SOEs under a single holding company structure, paving the way for divestiture, Public-Private Partnerships (PPPs), and, where appropriate, outright privatisation.

Some SOEs must be privatised fully. Others should enter PPPs. But the guiding principle should remain the same: let the private sector run businesses, not the State.

Closing 33 SOEs is a start. But unless we confront the inefficiency of the big five and end the distortions that SOEs create across the economy, Sri Lanka will remain stuck in the same cycle of loss, debt, and stagnation.