Sri Lanka reduced car duties by almost half in June last year, but then raised taxes in April to stem a flood of car imports.
When the Nano was launched it was expected to create a vast new market segment in India, a nation of 1.
2 billion people, but reality has fallen short of the hopes.
Analysts attributed the Nano's low sales to concerns over safety, lack of cheap financing and operational hiccups after production shifted to a new plant.
Last year, Tata was forced to offer free safety upgrades after around half a dozen of the cars caught fire. The cheapest no-frills Nano costs 925,000 rupees (,486) in Sri Lanka, compared to about ,000 for a basic model in India.
"We have started accepting bookings from today for the first 500 cars imported to Sri Lanka," an official of Dimo, the Colombo agent for Tata, said Sunday.
He said the price in Sri Lanka was due to high import duties and local sales taxes.
The Tata Nano generated worldwide interest when it was launched in 200