Feeling the pinch of reduced duties on import of CKD and CBU

June 12 - 18, 2006

The government has presented the federal budget for the fiscal year 2006-07. The total expenditure is over Rs. 1.5 trillion, while the budget document shows the total outlay of Rs1.31 trillion for fiscal 2006-07.

The government has set a growth target of 7 percent for 2006-07 and has allocated Rs. 250 billion for defence, Rs. 415 for the Public Sector Development Programme (PSDP), Rs. 48.72 billion for foreign debt servicing, Rs. 56.33 billion for foreign loan repayment and Rs. 190.78 billion for domestic debt servicing.

Customs duty on CKD vehicles is being reduced from 20 percent to 10 percent and from 60 percent to 30 percent on CBU vehicles. While there would be no sales tax on trucks and dumpers weighing more than five tonnes. The government has exempted customs duty on five sectors and introduced new Tariff Based System (TBS) for the auto sector. The TBS system will be effective from July 1 2006 and will replace the earlier deletion program. Duty has been rationalised on purpose-built taxi cabs, multi axle trucks and import of old/ used cars importability in transfer of residence scheme, baggage and gift scheme (for age of car) to be restricted to five years. Duty on equipment for assembly of CNG kits has also been exempted along with bicycle parts and components.

Local analysts have welcomed the budget saying that while it is people-friendly it will give a boost to agricultural sector as custom duty on import of tractors has been written off. While the government is trying to control inflation and have set the inflation target at 6.6 percent, the increase in government employees' salaries, pensions, tax relaxation on the import of tractors, subsidy on fertilizer will have an encouraging impact on the economy. Leading analyst maintain that the budget would improve the economy of Pakistan as the new measures will help reduce inflation but could have a slightly negative bearing on the bourses.

The government has kept the previous import policy unchanged in the budget, but has planned to ban import of cars which are above five-year old, as it negatively affects Central Board of Revenue (CBR) revenue. In the current budget, old vehicle importers have paid over Rs. 20 billion to the CBR under the head of customs duties and other taxes. Up to now, investors have imported approximately 35,000 old vehicles in the current year. The government has reduced the duty slabs on the import of commercial vehicles from 60 percent to 30 percent on completely built units (CBU). While some say that the import of commercial vehicles will not be a major threat to local manufacturers the government hasn't changed the previous auto import policy, much to the detriment of the local makers.

The Chairman of the Pakistan Association of Autoparts Exporters, Tahir Javed Malik, has said that he considers the current budget a setback to auto vending industry. In a statement he said that the auto industry is one of the fast growing industries of the country, helping to create job opportunities and attracting foreign investment and that the elimination of Deletion Programme would prove damaging.

He said that a 50 percent cut in duties on CBU units and CKD would put this sector in deep trouble and further added that while it was probable that the government would announce some special package, but nothing came up despite repeated calls. In the wake of globalization he said that the local vending industry fears further trouble ahead and urged the government to allow import of raw material for the auto industry on zero duty.


The Central Board of Revenue (CBR) has released new tariffs for the import of completely built-up units (CBUs) and completely knocked-down units (CKD) to be put in effect from July 1, 2006. According to the new Tariff Based System (TBS), import duty of 50 per cent would be valid for such components/parts which were manufactured locally and were imported for the assembly by the original equipment manufacturer (OEM) or by the commercial importers as replacement parts for vehicle plying in the country including such motor vehicles, which were not locally manufactured.

Correspondingly, 35 per cent duty would be levied on all other indigenised replacement parts, irrespective of the type and category of the vehicle, and for such indigenised parts identified separately as were meant for vehicles (CBU) having less than 35pc of duty.

The existing duty for vendors on import of raw materials and components of cars, buses, trucks and motorcycles was 5pc and 10pc, which was proposed to be reduced to zero per cent and 5pc, respectively. Conversely, the existing rates on components for assembly, manufacture of vehicles in any kit form, imported by the local manufacturers of automobiles, which have not been indigenised to continue through an exemption notification.