The government is likely to face shortfall in revenue collection as a result of import of used cars, according to car assemblers here. They do not look optimistic about revenue collection from import of used cars and argue that a completely built unit (CBU) gives only half the revenue to the government, as compared to completely knocked down unit (CKD) imported by auto makers to assemble cars in Pakistan.
As per duty structure, a used car is imported while replacing locally assembled car straightaway in sales perspective, but eats up revenue equivalent to two CKD units. These CKD units, after having been assembled in Pakistan give revenue of close to Rs 300,000 (approximately $3550) on average basis. This figure can not be matched by an imported used car as it replaces two CKDs whose revenue share to the government becomes on average Rs 600,000 (approximately $7100).
Auto industry (PAMA & PAPAAM) contribution to national exchequer amounted to Rs 68 billion, approximately, during 2009-10. However, passenger cars and LCV sector contributed Rs 34 billion to national exchequer during 2009-10 out of total FBR collection of Rs 1,390 billion. These calculations are based on fair and transparent collection of revenue by customs department which is under scrutiny and questions at the Supreme Court infamous containers case. The collections shortage due to pilferage mentioned in the data of United Nations Commodity Trade Statistics clearly shows that the government is putting its bet on a losing horse.
The government might not only lose the revenue which is forecast to be generated from the used car imports but would also lose a major share of revenue which is collected in the form of taxes and duties from the local auto manufacturers, as an industry source.
Original Equipment Manufacturers (OMEs) are listed at stock exchanges and are required by corporate good governance law to have their accounts audited externally on yearly basis, while every quarter a profit & loss statement is released to shareholders and general public disseminating the financial performance which is observed by the auditors.
Under such environment, OMEs are better and easier option for the revenue collectors as against the imported cars on the ports, which historically have been subjected to under-invoicing and misrepresentation. Industry sources said that the government is depending on the revenue collected by highly unreliable port authorities instead of a highly regulated and documented system of revenue collection at the source where these cars are produced in a more organised fashion.
During the period from January 2009 to December 2010 the rates of natural gas have increased by 13 percent, electricity by 34 percent, diesel by 34 percent, and petrol by 20 percent. In the international market, during the same period, the rate of steel has increased by 27 percent, from $586 to $746 per ton, while the rates of polypropylene, aluminium, copper and lead have increased by 67, 35, 24 and 45 percent respectively. These are important inputs in car production, while the local OMEs absorbed most of the increase in cost and have passed on a small amount to the customers.
Moreover, the rate of US dollar has increased by 6.1 percent against the rupee from June 2009 till date, while the rupee has depreciated 20 percent against Japanese yen during the same period, increasing the cost of imported parts used in locally made vehicles. Car makers generally had to adjust the prices keeping in view the increase in cost of production. However, producers have also made downward adjustments in rates whenever they got some space, according to industry sources.
They said that another impression that previous instance of allowing five-year old cars did not affect the local OMEs is incorrect, as it was the year when demand was exceeding supply and local manufacturers had invested billions of rupees to enhance their productivity to bridge the supply/demand gap. But the present statistics show otherwise as demand has gone down less than 125,000 cars annually and the production capacity has increased more than 275,000 cars per annum.
As such, there seems to be no justification to allow further two years relaxation in the age of used vehicles as, currently, the demand is less than the local production capacity itself. According to industry sources, auto industry is already trying very hard to cope with difficult circumstances to provide jobs and business opportunities to Pakistani citizens and produce world class vehicles at prices lower than international models produced and sold globally.
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