Once again, the government has imposed the restriction on importers whereby the duty and taxes on all imported vehicles under the personal baggage or gift scheme would be paid out of the foreign exchange arranged by Pakistani nationals living abroad or the local recipient supported by a bank encashment certificate that shows the conversion of foreign remittance into local currency. Exactly a year ago, this restriction was imposed and subsequently removed after motor dealers, who have their livelihoods attached to the business, raised hell.
A little background here first: used cars are imported into the country through gift, baggage and transfer of residence schemes for overseas Pakistanis. But in reality, motor dealers use documents of Pakistanis living abroad to import cars from Japan and other locations sold in large auctions. All the costs including the duties for these are paid by the motor dealers themselves and later sold in the market commercially. This is exploitation of the overseas Pakistani schemes and in most cases; these Pakistanis are only involved to the extent of providing documentation.
But this largely illegal machinery has operated with the knowledge of the government and its various ministries involved and custom officials processing the cars. Automakers claim the government loses an additional Rs20 billion in duties due to this policy while motor dealers claim there are no concessions and they do pay fixed duties on each car that is imported.
Currently, as many as 60,000 to 80,000 cars are imported into the country through these schemes which makes for a mammoth operation. During FY18, more than 75,000 used vehicles were imported. Though latest numbers for taxes are not available, during FY16, the sector imported 60,000 vehicles and paid Rs23 billion in taxes!
On the one hand, the new condition could ensure that the policy is only utilized by expatriate Pakistanis and not by motor dealers. On the other hand, the government loses revenue, many workers lose their jobs and consumers lose options for more cars. And let’s be fair, majority of the cars imported are smaller cars—below 1000cc—and predominantly in the engine range of 660cc -800cc which local automakers do not make (except Suzuki), so used cars are filling an important gap in a burgeoning middle class market.
For decades, consumers have complained about the quality, lack of standardization, paucity of options and variety in the car market. Automakers have failed to keep up with the demand and have not invested in the country as much as they could have while enjoying sweet tariff protection from imported vehicles.
It is important to note that used cars are not cheap. In fact, local Mehran and Wagon-R remain the cheapest vehicles in the country as opposed to imported used cars like Daihatsu Mira, Move, Toyota Vitz and Aqua, Nissan Days, Suzuki Every etc.
Here’s what the government needs to do. It needs to stop dilly-dallying around this issue and come up with a robust used cars policy that would complement the existing auto development policy 2016-2022. It should allow commercial imports of used cars.
The policy should have tough standard and quality restrictions as well as mechanisms in place to assess these metrics. It can be formulated by consulting stakeholders on both the sides of the debate—automakers as well as dealers. Some learnings can be made from India which has a used car policy but consumers prefer new local vehicles due to the favorable variety, price and quality.
If the government is concerned that new players joining the market will feel it is a disincentive to allow used cars, then during the five year period where players enjoy tariff concessions, used cars imports can have higher duties (not fixed taxes, but ad volerem taxes that are a percentage of the value of the car). Over the period of time, these duties can be trimmed down to a reasonable level.
Ultimately, over the five year period, new players should have localized enough to be able to compete with any used cars coming into the country, though competition seems unlikely since none of the new players plan on getting into the small car market. In any case, competition is a good motivator and around the world, that is what allows companies to continue investing and innovating.
Comments
Comments are closed.