Since the mid 1980s Sri Lanka has given completely tax free cars to elected rulers and tax slashed cars to state workers while taxing ordinary citizens to very high levels, in a perversion of just rule of law.
Many state workers then sell the 'permits' to others such as businessmen, arbitraging the difference between the tax paid and tax slashed car through an active grey secondary market.
On paper, state workers cannot 'sell' the car for three years as the motor vehicle registry do not entertain transfers of ownership, but people buy them on an understanding.
Last month Sri Lanka's rulers suddenly said state workers could sell the cars legally. But permit holders say a 500,000 rupee fee has to be paid to change the first owner."There is also a greater supply of permits now that honest state workers who were reluctant to sell the permits are now prepared to get rid of their permits," an industry analyst said.
"This has expanded the supply. The narrower margin of profit has also reduced interest in the permits, contributing to the fall in the price."
The tax permits have been a key channel of revenue leakages. When the state jacks up car prices for ordinary citizens, many turn to the permits, undermining state revenue.
Luxury BMW's which were selling about 20 units a month in the first quarter of 2012 tumbled after a tax hike,and then surged to 47 in August, 67 in September and 63 in October, which industry analysts believe are driven by permits.
In Sri Lanka the burden of the state which is visible is evident in the amount of taxes paid by citizens for food and items like cars.
A six to eight-year old Japanese car sells in Sri Lanka for about the same price as a US citizen pays for a brand new one.