Smuggling is undermining the economic viability of automotive lubricant companies, which are providing direct and indirect employment to thousands of families while making a significant contribution to the national kitty. 'There are about 100 companies importing quality automotive lubricants from different countries fulfilling the ever increasing need for quality lubricants.
They have almost 10 percent share in the total domestic market for the lubricants but at the same time those bringing in lubricants through informal channels are also enjoying the same volume,' says Zain Arif Butt, Marketing Director of AA Brothers, which is marketing Kixx, high quality Korean lubricants, in Pakistan. Zain has a bachelor's degree from University of Texas with majors in Marketing and Management and his company is dealing in lubricants section with GS Caltex a leading energy industry under brand name "Kixx" since 1999. Speaking to Business Recorder, Zain Arif Butt, said that though they are making a major contribution to the national exchequer in the form of sales tax, customs duty, income tax, further tax and extra tax but still facing threats from the smugglers who bring in lubricants without paying any tax using informal channels thus rendering them in-competitive with respect to price.
He said that the government should have addressed the situation long ago by enhancing security on the borders to curb the practice. He said that this is not only the perennial issue faced by the industry but also the government as smugglers deprive it of potential taxes it could get on legal imports. He said that these lubricants are being brought in to Pakistan through Afghanistan and Iran borders and there is a need to make the monitoring stiffer on these points.
Zain said that the total consumption of automotive lubricants in Pakistan is roughly around 43,000 metric tons out of which 60 percent is being fulfilled by local refineries, 20 percent by the local blending sector and 10 percent by importing companies. He said it is a highly capital intensive company while their sector is importing from Korea and other countries which are marketing high quality lubricants.
He also underscored the effect of the high rates of different taxes such as he said: "We are paying 22 percent sales tax, 21 percent customs duty, 6 percent income tax and some other small taxes." He said that with the growth in sales of automotive and introduction of big luxurious cars, demand of lubricants and that too of high quality lubricants was also on the rise. This industry is growing at a rate of over 10 percent and hoped that it would continue expanding at the rate of 10-12 percent for next five years, he added.
He pointed that with the completion of China-Pakistan Economic Corridor (CPEC), the demand for new automobiles is bound to surge with an increase in traffic between China and Pakistan. He was of the view that if government would reduce tax rates, it would discourage smuggling and help companies distribute high quality lubricants at competitive rates which would enhance the age of the vehicles as well as reducing the carbon footprint of growing car numbers, a positive contribution to the environment. At the same time, Zain praised the current government and said that their policies to address the energy crisis was bearing fruit and hoped that it would soon be launching the next phase of bringing down prices. He said that it would kick start the industrialization and once again create more demand for the base oils and lubricants for the machinery.