Three-wheeeler auto rickshaws imported from India are expected to take a hit in Sri Lanka as the government in its new budget proposal today announced measures to replace them with electric cars.

The government will encourage use of electric cars in preference over three-wheelers by reducing excise duty and giving an interest rate subsidy on loans to buy the vehicles, Finance Minister Ravi Karunanayake announced in parliament, delivering his 2017 budget speech.

Karunanayake said that Carbon Tax will be imposed on vehicles other than electric cars and tractors with the fee to include the existing emission test fee. 

"We have nearly 1.3 million three-wheelers operating on our roads and they are the most vulnerable to accidents," he said. 

"To improve safety of the drivers as well as passengers, I encourage the replacement of three-wheelers with electric cars.

"As an initial step, the government will within the Colombo district, extend its support by introducing a loan scheme to purchase 1,000 such electric cars, through the banks, where the government will bear 50 per cent of the interest cost for which I propose to allocate Rs 200 million."

India's Bajaj AutoBSE -1.66 % dominates the three-wheelers' imports in Sri Lankan market. 

He said the government wants to encourage Sri Lankan companies to invest in underdeveloped areas like the former war-ravaged areas in north and east. 

A 200 per cent capital allowance will be given to firm investing in the northern province. 

The budget hopes to maintain a 4.6 per cent deficit in 2017, down from 5.4 per cent for this year, Karunanayake said.

The budget deficit for this year is expected at 5.4 per cent at 670 billion rupees. 

Total revenue and grants are Rs 2,098 billion for 2017, while total expenditure is estimated at Rs 2,723 billion.

(PTI)