REDUCTION IN DUTY ON MOTORCYCLES

It would encourage import of motorcycles to provide a choice to the potential buyers

By SYED M. ASLAM
July 01 - 07, 2002

The reduction of duty on completely-built-up (CBU) motorcycles is expected to boost imports of the two-wheelers for the overall benefit of the transport starved low- and middle-income segment of the society. The high import duty levied on the imports for last two decades has discouraged the imports due to uneconomic landing costs on the one hand and prices of locally assembled counterparts which have soared out of reach due to absence of real competition.

The government has slashed the import duty on the completely-built-up motorcycles from 105 per cent to 75 per cent in the Budget 2002-03. Market sources informed PAGE that the reduction would help bring down total impact of the landed costs from uneconomic 157 per cent to relatively affordable level of 111 per cent including the duty, 15 per cent sales tax, 6 per cent with-holding tax.

Talking to PAGE Muhammad Sabir Shaikh, a Karachi-based progressive assembler of Chinese motorcycle Guangta hailed the cut in the import duty saying that it would encourage import of motorcycles to provide a choice to the potential buyers in term of price and variety. Sabir informed PAGE that prior to 1982 motorcycle imports were subjected to an affordable level of duty. The three major Japanese motorcycle manufacturers who enjoy the lion's share of the market today used to import the two-wheelers themselves prior to 1981. "However, the imports were subjected to high duty of 105 per cent in 1982 when these importers decided to assemble the two-wheelers themselves within the country and convinced the government to impose the discouragingly high duty to provide them a fiscal protection against imports. Thus for the last two decades, the imports of two-wheelers came to a trickle to let these companies dictate their prices pushing them to unaffordable levels in the absence of any real competition."

Today a range of products of these three local two-wheeler producers retails between Rs 69,000 to Rs 80,000 making them out of reach of the purchasing power of even the middle-class segment of the society. Though, in recent years a number of progressive assemblers engaged in small-scale production of mainly Chinese brands two-wheelers have brought a kind of competition, the three major producers still enjoy the biggest share of the market despite the fact that the prices of locally assembled Chinese two-wheelers are much more competitive between Rs 37,000 to Rs 48,000.

The high prices in addition to rampant thefts and snatchings have taken a heavy toll on the sales of motorcycles in Karachi, which used to be the top two-wheeler market of the country a decade ago. According to Sabir, Karachi has primarily become a market of used two-wheelers in last four years some 100,000 used two-wheelers changed ownership in Karachi compared to about 25,000 new motorcycles. Sabir said that at present only about 500 new motorcycles are sold in Karachi every month compared to 2,500 in Lahore which used to sell less new two-wheelers than Karachi in the past.

He, however, said that the reduction in the import duty will encourage imports of two-wheelers mainly from China, which offers upto 100 cc motorcycles at an affordable C&F price of up to $ 330. "The reduced duty has cut the landing costs to 111 per cent would help the importers to retail the Chinese products at an affordable all-inclusive price of Rs 42,000. We expect that the sales of new two-wheelers in Karachi would increase three-fold from 500 units per month at present to 1,500 units per month in near future."

Sabir, who is also the president of Sindh Motorcycle Assemblers Association said that while he welcomes the reduction for the benefit of the transport-starved middle-class segment of the society, the government should also provide relief to the manufacturers and assemblers. "While the government has seen it fit to reduce the duty on the import of completely-built-up two-wheelers, the manufacturers and progressive assemblers which our association represents are still subjected to high 30 per cent duty on import of Completely-knock-down units, parts and assembly used in the manufacture of the two wheelers. The duty on the CKDs, parts and assembly is even more than that on replacement parts which are subjected to a comparatively lower duty of 25 per cent. "The anomalies should be removed to provide a level playing field for the manufacturers and assemblers. It would only be fair."

Sabir further said that the progressive assemblers of Chinese motorcycles are facing difficulty to market their products in Sindh as the Ministry of Industries has not issued licenses to them. "Many of our members have invested considerable amount of monies to produce Chinese motorcycles in Sindh but they have not been issued the required licenses to market their products while no such problems are faced by their counterparts in Punjab. These progressive manufacturers should be issued the required licenses so that they can play their due role to help bring competition in a market which has remained devoid of competition for such a long duration of time."