Cars, motorcycles, tractors: EDB proposes additional duty on import of 58 localised parts

Engineering Development Board (EDB) has proposed imposition of additional duty on import of 58 more localised parts being used in cars, motorcycles and tractors in the federal budget 2015-16, well informed sources told Business Recorder. EDB, in its budget proposals has requested FBR that amendment should be incorporated in SRO 693(1) 2006 for upward revision in duty.
The details of parts/components on which additional duty is expected to be slapped are as follows: spring rebound front fork - front shocks for motorcycles, ring oil seal stopper -front shocks for motorcycles, pipe comp front fork-front shocks for motorcycles, pipe seat -front shocks for motorcycles, seat bottom -front shocks for motorcycles, pipe /inner tube -front shocks for motorcycles, case bottom/outer tube-front shocks for motorcycles, spring rear cushion-rear shock for motorcycles, spring rebound rear cushion -rear shock for motorcycles seat spring rear cushion -rear shock for motorcycles, case damper/pump/rebound-rear shock for motorcycles, stopper valve -rear shock for motorcycles, bush rubber-rear shock for motorcycles gear shift assembly complete -motorcycles engine parts, shaft assembly kick starter -motorcycles engine parts, spring kick starter double coil -motorcycles engine parts, spring kick starter ratchet -motorcycles engine parts, spring shift drum stopper -motorcycles engine parts spring clutch -motorcycles engine parts, spring clutch damper -motorcycles engine parts cam for brakes -motorcycles engine parts, lever cam brake front & rear - motorcycles engine parts.
EDB has also proposed to add following parts, in SRO 693(1)/2006 as well as in Customs Tariff for cars and motorcycles: sash front door rear ril (excl. door windows) - cars up to 800cc; sash rear door center (exel. door windows) - cars up to 800cc; knuckle steering - cars up to 800cc; water pump - cars all cate_g_ories; fuel filter - cars all categories; seat recliner - cars all categories; air cleaner assembly - cars all categories; power steering (manual) - cars all categories; engines - cars all categories; transmissions (manual) - cars all categories; magneto - motorcycles; oil pump - motorcycles; drum gear shift - motorcycles; spring oil through - motorcycles; spring side cover lock - motorcycles; seat valve spring outer - motorcycles; washer kick starter knuckle - motorcycles and spring front fork - front shocks for motorcycles.
According to sources, certain components/assemblies used for assembly of Cars 87.03 & Motorcycles 87.11 were also supposed to be shifted under SRO 693(1)/2006, which were also recommended by EDB in previous years budgetary proposals.
Original Equipment Manufacturers (OEMs) supply parts to their authorised dealers for onward supply in the after sale market and pay ST on the import of spare parts whereas the commercial importers pay sales tax at a much lower rate (2%). The sources further stated that authorised dealers of automotive vehicles operating on behalf of OEMs are registered for sales tax purpose, whereas other dealers engaged in sale and purchase of new and used vehicles, whether locally manufactured or imported, are out of the ambit of sales tax.
Following amendment is proposed in rule 45 of Chapter-VIII of Sales Tax Special Procedure Rules to bring such dealers in the tax net. "All vehicle & Spare Parts dealers shall be required to be registered under the Act who are engaged or otherwise deal in the sale of locally manufactured and all types of imported vehicles and spare parts, whether new or old / used, on the basis of commission or otherwise, whether or not such dealer is appointed or authorised by the manufacturer or importer of vehicles."
To remove this anomaly, EDB has proposed that the retail sellers and commercial importers of automotive spare parts may also be subjected to sales tax at standard rate ie 17% like the OEMs, the sources continued. The sources further stated that tariff scheme for pneumatic tyres of rubber under PCT heading 40.11 is such that all locally manufactured pneumatic tyres are importable @ 20 or 25% CD, except for those falling under HS code 4011.2090, which are @ 5% CD.
A lower rate of CD for aforesaid heavy vehicle tyres including trucks, buses, tractors, etc was levied to curb their smuggling. However, the objective of curbing smuggling has since not been achieved and the local industry is suffering due to increase in commercial import of these tyres at grossly under invoiced values. EDB has proposed that CD on pneumatic tyres of rubber falling under HS code 4011.2090 may also be raised to 20%, in line with protective rates of duty for tyres falling under tariff headings 4011.1000 and 4011.2010.
The sources further stated that the Ministry of Industries and Production has recommended the proposal for review of fixed duty regime under SRO 577 used cars. The up-gradation of the prices $ to JPY parity will give more privilege to OEMs and deprive the local customer from good quality and cheaper vehicles. The proposal recommended by EDB and MoIP seems to be supporting local OEMs in terms of local industry but have not thought of the standard and prices kept by OEMs.
The sources said, OEMS in the localisation has been taking benefits in custom duty by taking IOR discount rate of import but have not passed the equal difference to consumer. Same is the case that Hi tech parts which were included in SRO 693 of localization in 2008-9 was not done and was always not perused due to strong lobby. The sources were of the view that under SRO 577(1)/2005, duties and taxes rates were fixed in US dollars way back in year 2005 and, except once in the year 2008, have not been revised for more than five years, whereas, during this period, US$ to JPY parity has changed and the prices of vehicles have increased substantially. SRO 577 (1)/2005 may be updated to bring the fixed amount of duty and taxes at par with the reality of the time
The amount of duty fixed unchanged for last more than five years is an obvious lapse causing loss to the exchequer and it has become an implicit subsidy (very heavy indeed) to the used cars which discriminates the local industry by taking market share unduly. Above all, when updated, the government will be able to recover additional billions as revenue.