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The reduction is more symbolic than real

By Syed M. Aslam
June 24 - 30, 2002

Will the reduction of duty on the import of vehicles help achieve the desired results envisaged by Federal Finance Minister Shaukat Aziz? In his Budget 2002-03 speech, the minister said that the "duties on import of vehicles are extremely high and thus there is no import ...The sense of lack of competition tempts the local manufacturers to be costly and less quality conscious thus jeopardizing the legitimate interests of consumer."

Duties on imported vehicles are reduction by 20-50 per cent duty on cars above 1000 to 1500 cc is reduced by 20 per cent, from 120 to 100 per cent, by 25 per cent each for cars up to 1000 cc and between 1501-1800 cc from 100 to 75 per cent and 150 to 125 per cent respectively. The biggest reduction is made in 1800 cc and above cars the import duty on which is slashed by 50 per cent from 250 to 200 per cent.

Observers say that the reduction in duty would not help induct competition as desired because the token reduction is more symbolic than real. They said that the overall impact of duties and taxes structure at the import stage still remains much too high to encourage imports to bring in a sense of competition in the market to force the local car producers to better the prices and quality of their respective products as envisioned by the Finance Minister.

Talking to PAGE the chairman of All Pakistan Motor Dealers Association, H.M. Shahzad, said that besides the duty car imports are subjected to 15 per cent sales tax and 6 per cent income tax like all other imports but also attracts CVT (Central Vehicle Tax) depending on types of vehicles. For instance, there is no CVT on cars up to 800 cc, 3.75 per cent of the value on 800-1000 cc cars, 5 per cent on 1000-1500 cc cars, 6.25 per cent on 1500-1600 cc cars and 7.5 per cent on 1600-1800 cc cars. Import of cars above 1800 cc are charged increased CVT.

The duties and taxes still add up to inflate the landing costs of a vehicle highly uneconomical to market them in the country. "Thus, despite the reduction in duties the tariff structure still remains highly discouraging to import vehicles into the country and in turn incapable to bring the sense of competition to let local producers better their performance both in terms of price and quality.

"It is more like a lollipop to soothe the public outcry about high prices and inferior quality of locally produced cars and thus would serve no real purpose. It would neither benefit the government in terms of revenue nor to the public which has increasingly become vocal about the prices and quality of the locally produced cars. It will only help the local car assemblers tacitly and will not create an environment of efficiency and competition as desired."

Moreover, the biggest benefit of the reduction 50 per cent- is accorded to cars over 1800 cc which are far more expensive than their smaller counterparts. In a country where the small cars, 1000 cc and below, make up the single biggest segment of the auto market this 50 per cent reduction in duty on big over 1800 cc cars is certainly not aimed at providing relief to the general public but to a choosen few who could afford to buy big expensive cars. "How many people can afford to buy over 1800 cc cars in this country," asked Shahzad.

Over the years the highly discouraging import duties on cars has been defended on the pretext of protecting the auto industry of the country. The reasoning seems to make sense but the fact remains that the industry has been protected at the expense of the consumers in a country reeling from low per capita income, eroding purchasing and saving power, and increasing costs of maintenance, repair and fuel. And the reduction in duty in the Budget 2002-03 is just too little to make any difference.

Shahzad alleged the local auto industry has been accorded undue protection at the cost of the consumers who enjoy no choices whatsoever. "South Africa houses 14 auto manufacturers manufacturers not assemblers and yet it allows the import of used cars at affordable duties for the benefit of consumers to keep the sense of competition, efficiency and productivity alive."

In addition the terms and conditions for the import of used cars under personal baggage scheme, gift and Transfer of Residence Schemes (TRS)discourage imports. For instance, bringing a car over two-year old remains restricted under personal baggage and gift scheme by a returning national and in the case of TRS the returning national is required to have the car registered under his name as well as having a driving license overseas.

Replying to a question put by PAGE at the press briefing at the State Bank in Karachi, Finance Minister Shaukat Aziz said that the reduction in duty on car imports "is a signal to the local auto assemblers to improve efficiency and productivity. It will help encourage the local industry to become price competitive and quality conscious. They have got the message."

So, the reduction is more symbolic than real. The fact that the reduction is token and thus not enough to bring down the total impact of landing costs to an affordable level means that it would not benefit the consumers in term of choice both price, make and quality.