• JB Securities highlights systemic bias against 2.0-litre Japanese hybrids despite proven secondary market reliability
• Electric passenger vehicle registrations remain historically elevated, driven heavily by Chinese manufacturer BYD

Sri Lanka’s engine displacement-based automotive taxation framework is creating severe market distortions, effectively penalizing globally acclaimed, highly efficient hybrid vehicles while disproportionately favouring electric vehicle-first architectures, according to leading equities and research firm JB Securities.

The current fiscal structure restricts consumer choice across the domestic market, systematically shutting out world-renowned fuel-efficient models with established secondary market reliability while accelerating the influx of newer battery-electric and extended-range powertrains.

JB Securities Chief Executive Officer Murtaza Jafferjee pointed out that despite widespread consumer demand for proven Japanese hybrid engineering, Sri Lankan buyers face restricted access to benchmark models due to punitive duty structures on internal combustion engines exceeding 1,500cc. Total hybrid vehicle registrations declined to 2,288 units in July from 3,023 units in June, with sports utility vehicles accounting for virtually all hybrid volume, led by Toyota, Honda, and BYD’s expanding presence through the Sealion and Denza ranges.

“It is somewhat ironic that Sri Lankan consumers have limited access to globally acclaimed models such as the Toyota Prius, RAV4 Hybrid, and Corolla Cross Hybrid, despite their reputation for reliability, fuel efficiency, and strong resale values,” Jafferjee stated. “Their absence is largely attributable to a tax regime that penalises their 2.0-litre hybrid powertrains, while often favouring EV-first vehicles whose internal combustion engines play only a supporting role. By using engine displacement as a key determinant of taxation, the system effectively rewards particular engineering solutions over others, creating market distortions that restrict consumer choice and exclude some of the world’s most successful vehicle models from meaningful participation in the Sri Lankan market.”

This regulatory disparity has profound implications for secondary market economics and long-term vehicle residual values. Traditionally, Japanese full-hybrid powertrains from manufacturers like Toyota and Honda have demonstrated unmatched secondary market value retention in Sri Lanka, supported by extensive parts availability, modular battery repairs, and trusted long-term durability. In contrast, battery electric vehicles and complex plug-in powertrains often face steeper depreciation curves in second-hand markets. This vulnerability is largely driven by consumer concerns over long-term battery degradation, expensive out-of-warranty traction battery replacements, and the rapid pace of technological obsolescence from fast-iterating automotive manufacturers.

Despite these secondary market considerations, the existing fiscal bias has underpinned strong demand for electric mobility solutions. In the four-wheeler passenger segment, pure electric motor car registrations reached 992 units in July, with Chinese electric vehicle giant BYD maintaining an overwhelming dominance by accounting for 801 units, while BAW and Wuling followed distantly with 63 and 53 units, respectively. In the electric SUV space, 433 units were registered, with BYD securing 314 of those deliveries, primarily through its Atto crossover lineup.

Overall, electric vehicle registrations remained at historically elevated levels despite a modest moderation, while financing penetration dropped to 34.7 percent from 41.2 percent.

Automotive industry analysts argue that if Sri Lanka aims to foster genuine decarbonisation without introducing structural distortions or asset-value risks for consumers, the government must transition from an outdated engine capacity tax formula to a holistic emissions-based or lifecycle carbon taxation system. Under an equitable fiscal regime, cutting-edge 2.0-litre hybrid powertrains—which offer proven efficiency and robust resale value without relying on national grid charging infrastructure—could compete fairly against full-electric models on the showroom floor. (NF)