Temporary import, export of vehicles: MoC and FBR lock horns over former’s proposal

ISLAMABAD: The Commerce Ministry and the Federal Board of Revenue (FBR) have reportedly locked horns over the former’s proposal for temporary import and export of vehicles (PCT 8703) to business concerns with automobile repairing facilities, well-informed sources told Business Recorder.

The Ministry of Commerce received various proposals for allowing temporary import of accidental and damaged vehicles on import -cum-export basis, wherein after necessary repair works the vehicles would be re-exported to overseas principals.

In such transactions, no foreign exchange would be involved at import stage, rather foreign earnings shall be received in the form of service fee for restoration/repair works.

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For the purposes of establishing such a “service oriented” industry, applicants/investors have sought policy support in the form of necessary amend rent(s) in Paragraph 13 and Sr. No 10 of Appendix-C of the Import Policy Order (IPO), 2022. The matter has also been taken up by the Special Investment Facilitation Council (SIFC).

In order to facilitate and promote exports, various schemes have been introduced under EFS 2021 including International Toll Manufacturing (ITM), wherein the input goods are supplied by a foreign principal for production of final goods to be re-exported against a fee.

However, goods on the negative lists (banned items, e.g. Appendix-A or C of IPO 2022) cannot be imported under EFS unless a specific permission is granted or the IPO is amended accordingly.

In consideration of the proposals, Ministry of Commerce had placed a Summary before the ECC of the Cabinet. However, the ECC in its decision of July 26, 2023 had deferred consideration of the summary with the direction to carry out detailed consultations with Federal Board of Revenue (FBR), Ministry of Industries & Production (MoI&P) and State Bank of Pakistan (SBP) and to submit the case to the ECC afresh.

In pursuance, a consultative meeting to discuss various contours of the proposal was held in MoC, October 10, 2023, wherein officers from FBR, Engineering Development Board (EDB)/MoI&P, SBP and MoC participated in the consultation process.

The sources said, SBP and MOI&P had supported the proposal with the caveat that effective controls may be put in place to avoid any misuse of the scheme; the temporarily imported vehicles should be re-exported after restoration/ repair works and their domestic sale may not be allowed; performance audit of the firms operating under the subject scheme should be on quarterly or half- yearly basis; and the scheme may be restricted initially to vintage cars only etc. MoI&P supported the proposal in principle but sought certain clarifications thereto, to which Ministry of Commerce responded.

The FBR opposed the proposal on the ground that repair/refurbishment of vehicles does not fall in the definition of International Toll Manufacturing (ITM) as contained in rule-871(0) of the EFS 2021; thus the proposal was impractical because issuance of authorization and analysis certificates would be difficult for the vehicles involving replacement of parts and accessories of old and used vehicles (varying from vehicles to vehicles); and that the proposal is not substantiated by any existing venture of this nature .

The Ministry further contended that the definition or the interpretation of the expression ITM as contained in EFS 2021, seems to be very restrictive. ITM essentially entails Make-to-Order which may include refurbishment/restoration works of damaged vehicles. Thus the definition of ITM may be amended to include all such ventures wherein the input goods are to be supplied by a foreign principal for production or assembly of final goods or repairs/restoration works involving substantial transformation in the final goods etc.

This could potentially generate employment, foreign exchange earnings and open up new products/markets in line with market diversification agenda of the federal government. After explaining the background of the proposal, Commerce Ministry has made the following proposals for consideration of the ECC of the Cabinet: (i) FBR may amend the rules to support International Toll Manufacturing for repair/restoration works’ of used automobiles in EFS 2021; (ii) temporary import of vehicle (PCT 8703) may be allowed to business concerns with automobiles repairing facilities registered as ITM under EFS 2021 for carrying out repair, restoration and refurbishment works in Pakistan, and for their subsequent re-export within the stipulated time period as fixed by the concerned Customs Collectorate, on import-cum-export basis. To allow this arrangement, paragraph-1 and Sr. No 10 of Appendix-C of IPC 2022 may be amended accordingly; (iii) notwithstanding provisions of rules 886 and 887 of EFS 2021, sale of such vehicles in tariff area (domestic sales) may not be allowed in any circumstances and; (iv) firms operating under this scheme may be subject to half-yearly performance audit under EFS 2021.

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