This discriminatory treatment is actually encouraging non-documented transactions of used cars through black money, under invoicing, tax avoidance and other malpractices.

Oct 09 - Oct 15, 2006

Pakistan's key macroeconomic indicators have shown some very positive signs of development. GDP growth rate has touched 6% and is projected to go higher this fiscal year. Foreign remittances have crossed $8 billion mark, per capita income is now above $840, foreign investments have crossed the $2 billion mark and car leasing and financing rates are at manageable levels for general consumers to go for new cars.

These macroeconomic indicators directly affect automobile demand and accordingly automobile market in Pakistan has experienced extraordinary and unexpected growth in the last four years. Sales of passenger cars and light commercial vehicles have gone up from 45,000 units in 2000-01 to 185,000 in 2005-06 and are expected to accelerate at similar pace in the years to come.

The chances for the auto industry to grow even more with greater acceleration are there but this obviously needs support of government and a rethinking on its policies governing the industry. The auto industry is still feeling the brunt of GOP persistence on its policy of liberalized import of used cars where vehicles up to 5 years old can be imported. A report suggests that almost 35,000 used cars are being imported into Pakistan per year, which is almost 40% of the total market demand. Recently, Federal Minister for State and Deputy Chairman Planning Commission Dr. Akram Sheikh has rightfully criticized the liberal automobile import policy of the government, terming it "detrimental to the interest of domestic vendors and auto manufacturers".

Adding insult to injury, the recently announced government policy requiring an NTN certificate for purchasing vehicles from local manufactures is a cause of concern. The Central Board of Revenue (CBR) has directed the manufacturers of motor cars to sell the vehicles to the National Tax Number (NTN) holders only and also asked them to submit to CBR the complete particulars of buyers on monthly basis. On the other hand, it is very surprising that NTN certificate is not required for importing or purchasing foreign used cars. This discriminatory treatment is actually encouraging non-documented transactions of used cars through black money, under invoicing, tax avoidance and other malpractices. Importers and buyers of used cars continue enjoying exemption from documentation and the tax net while all sales of locally manufactured cars are fully documented with NTN certificates.

While there is no equity or investment of the government in local auto manufacturing companies, government revenue through duties and taxes paid by auto manufacturers is the highest in the large scale manufacturing sector. While GOP is directly reaping benefits from the industry, it should at least devise a policy framework that supports local auto manufacturing and ensures its expansion, growth and further investment. The non-requirement of NTN for imported used cars is another example of GOP, harming the Pakistani industry while favoring import of used cars.

Apparently the recent policy decision of the government is not only directed at cutting down its own revenue, but is also obstructing future investment and expansion plans of the auto manufacturers who are already under a lot of pressure due to government's strict regulations. On one hand auto manufacturers have been asked to increase production, while on the other hand, no incentives have been offered to facilitate expansion and quality assurance. Instead of a clear cut long-term policy, short-term measures like the NTN condition are being employed.

Contrary to the government's optimistic expectations through duty reduction on import of reconditioned cars, Pakistan's auto industry has started feeling the negative impact of the government's inconsistent policies. It is up to the policy makers to decide whether they want their country to develop a self reliant auto manufacturing sector to produce high quality cars locally, or convert the market into an international dumping ground for second graded, used and reconditioned vehicles. It is for sure that the later is not in the interest of either the consumer or the country. To realize the true potential of the auto industry, the government must provide long-term policy measures, which in return will allow the industry to make long term plans. The government should give another thought to the current used car import policy and remove obstacles like unnecessary requirements for the sale of new locally manufactured vehicles.