Earlier in the year Sri Lanka slapped new taxes of as much as 100 percent of import value on some imported cars, but raised taxes on hybrid cars at a lower rate in a move to ease congestion on roads, cut fuel costs and to reduce the import bill amid a deepening balance of payment crisis.
According to data from Sri Lanka's Department of Motor Traffic, registration of smaller cars below 1000cc engine capacity has dropped to 7,343 in the first half of 2012, compared to 12,432 registrations in the same period last year.
Industry officials estimate new vehicle registrations may drop up to 40 percent in 2012 and dreams of motor bike owners to move on to small cars will be shattered.
Motor trade officials say a state import duty hike has sent prices of smaller cars (below 1000 cubic centimeter engine capacity) like the Indian-made Maruti Alto up putting them beyond reach of the people with modest incomes.
Sales of Maruti Alto, Sri Lanka's best-selling car fell to 127 units in July 2012 from 858 units in July 2011, JB stockbrokers, an equities research house said.
Cherry dropped to 4 units in July from 41 in the same period last year, Maruti/Suzuki to 236 from 1373, Nissan to 3 from 58 and Toyota to 27 from 66 units.
Motor cycle sales in July 2012 dropped to 11,315 from 20,460 compared to the same period last year.
Trishaws have rebounded 4000 units a month to 8009 in July 2012 with the peak reaching around 11,000 in January 2012.
Approximately 85 percent of trishaws, 48 percent of motor bikes and 88 percent of lorries are bought on credit, JB securities said.
Direct purchase of motor cars has gradually decreased to 694 units in July 2012 from 1,171 units in May this year.