Exceptional growth in
vehicular population on the back of 33 percent increase in domestic
production of automobiles coupled with a mad rush for imports of new
and used cars is posing a serious threat to the local infrastructure
which was not designed to accommodate such a huge influx in the major
cities of the country.
Despite a rapid growth in the
number of cars plying on roads in major cities like Karachi, Lahore,
Islamabad, Peshawar and Quetta the gap between demand and supply
continues to widen amazingly, showing ample scope for enhancing
production capacity by the car manufacturers in Pakistan.
Though the robust growth in
the auto sector is a strong macroeconomic indicator and will certainly
stabilise the engineering industry in Pakistan, yet the unplanned
growth in automobiles is entailing serious health and social problems
in the urban areas of the country.
Consequently, the road
occupancy is being sharply reduced which is resulting in traffic
congestions at almost all major traffic intersections of the city,
besides contributing smoke and noise pollution in the sidelines.
According to senior medical
practitioners associated with Pakistan Medical Association the
outburst of allergy-borne diseases like asthma, skin allergies,
anxiety and hyper tension are some of the serious contributions of the
unplanned growth in the number of vehicles in Karachi.
It is the road congestion
which causes such health hazards besides road accidents. They strongly
suggested for a master plan designed in a manner that the capacity of
the roads can accommodate the existing and future growth in vehicular
The newly elected city Nazim
Mustafa Kamal has taken notice of the road infrastructure and has
decided to take remedial measures immediately to resolve the issue. He
has also asked the relevant department that in future no road will be
constructed without sideline rain drainage facility as the standing
rain or overflowing sewerage water usually damage the roads.
Hopefully, the road conditions will improve as the new city Nazim is
taking special care of the civic infrastructure in the city.
macroeconomic indicators have shown optimistic and positive progress
in the past five years. This has a direct bearing on automobile
demand, and consequently, the automobile marketplace in Pakistan has
experienced unanticipated growth in demand in the last five years.
This increase was not foreseen by the government, the car manufactures
or even the vendors.
IMPORTED NEW AND USED
reduced duties on imported cars in the budget for the financial year
2005-06, in order to lessen the demand-supply gap in the short term.
These duties had already been substantially reduced in the last
Within the last five years,
duties on the import of new cars have been reduced by almost three
times and by more than half in the last two years only. This reduction
is bound to have an unfavorable impact on local automobile
manufacturing and does not augur well for increasing foreign
investment in this sector in the country.
Additionally, the rate of
depreciation allowed on import of used cars has increased from 1% per
month to 2 % per month on used cars below 1800 cc. To this, if we add
up to 50% depreciation allowed by customs on used cars imported under
the baggage scheme, the landed price of used cars has reduced
Under the revised Trade
Policy, which was announced on July 22, 2005, numerous changes have
been made in the Personal Baggage, Transfer of Residence and Gift
Schemes (import of vehicles) Rules 2004 that have a negative bearing
in the automobile industry. For example, cars up to three years old
can be imported under the Gift and Personal Baggage Scheme as against
two years old previously. Also, the clause for mandatory registration
in the name of importer under the Transfer of Residence Scheme and
Personal Baggage Scheme has been abolished. Previously, under the
Transfer of Residence Scheme, the vehicle had to be registered in the
name of the applicant for at least 365 days prior to departure for
Pakistan and under the Personal Baggage Scheme the vehicle had to be
registered in the name of the applicant for at least 60 days prior to
departure for Pakistan.
The implication of this
policy is that a flood of imported cars particularly in the range of 4
x 4 pick ups and SUVs have inundated the local market. The impact of
reduced duties can be gauged from the fact that the reduction in
duties in the last budget 05-06, in the first quarter of the new
fiscal year, the imported new and used cars constituted more than 30%
of the total imports for the year 2004-05. Even at a conservative
estimate, if the imports continue at the same rate, it is expected
that 30,000 to 40,000 new and used vehicles will be imported during
05-06. On a calendar year basis, compared to 2,325 new and old
vehicles imported in 2004, 5108 new and old vehicles have been
imported till September 2005. This indicates an increase of more than
The absence of NTN
certificate requirement for purchasing imported cars in Pakistan
clears the pathway for under invoicing and forged documentation. From
data received through Pakistan Revenue Automation Limited (PRAL), it
is evident that rampant under invoicing is being done by importers of
used cars. In numerous cases, the value of the vehicle assessed by the
customs authorities is more than thrice the value declared by the
importers. This only corroborates the trepidations voiced by the car
manufactures, that used car imports are not properly regulated and
always lead to under invoicing, procedural irregularities and loss of
revenue to the government. Thus importers and buyers of imported cars
are still exempt from documentation and tax net, while all sales of
locally manufactured cars are fully documented with NTN certificate.
When we take a look at the
recent policy change, it is very important that there is a candid
appraisal of the positive and negative affects on the market, the
industry and the country's economy. Apparently the recent policy
decision of the government not only aims at slashing its own revenues,
but also slows down future investment and expansion plans of the auto
manufacturers who are already under tremendous pressure due to the
government's strict regulations on localization and price control. On
one hand the auto manufacturers have been asked to increase production
and maintain quality, while no incentives have been offered to
facilitate expansion and quality assurance. It may be noted that a car
may have 7,000-10,000 parts, and with government enforced localization
targets of 50 % to 75% for cars, there is pressure on local auto parts
vendors to increase production, while in chorus maintaining quality.
In addition to the flood of