Sri Lanka has made electric and hybrid cars duty free, while value added tax and rates of depreciation allowed for used cars has also been increased, a budget for 2011 said.

Another tax, social responsibility levy has been removed and nation building tax reduced from 4.0 percent to 3.0 percent.

But a Treasury official said excise taxes have been raised to recoup revenue losses from other taxes.

Though the price of new cars may not come down, an official said the price of older car could come down.

Some commercial vehicles were already on a lower duty.

President Mahinda Rajapaksa said electric and hybrid vehicles will be completely freed from excise duties and value added tax to promote environmental friendly vehicles.

Motor homes will also be made duty free, according to the budget document.

Sri Lanka allows cars up to three and a half years old to be imported.

Now three year old cars will be depreciated to 60 percent compared to about 80 percent earlier. Cars three and half years old will be depreciated to 55 percent.

The budget speech said the depreciation tables will comply with World Trade Organization rules.

The government will also allow state workers and state corporation employees to import cars at a lower duty.

A provision that allowed people who paid taxes of more than 500,000 a year for three consecutive years to import cars at 25 percent duty has been removed in the budget.