Duty Structure be revised to dissuade auto parts smuggling

Oct 01 - 07, 2007

Automotive sector of Pakistan is booming rapidly attributed to the economic restructuring and alignment of the financial policies in the present government. In the budget 2006-07, Tariff Based System was introduced to compensate the end of deletion program, which introduced in 1996 to protect local auto parts manufacturers. Since ten years, local vendors fulfilled the demands of assemblers aka Original Equipment Manufacturers like Toyota, Suzuki, Nissan, and Honda and caused job creation in a protectionism regime. The unnecessary levies, however, in the form of custom duties on imported auto parts and heavy duty structure of around 80 percent detracted importers to utilize legal channels of trade and promoted unimaginable smuggling. In an interview with the PAGE, Vice Chairman Central, The Pakistan Automobile Spare Parts Importers & Dealers Association, Irfan Ali Sabir enunciated the factors behind the unprecedented growth of Pakistan's automotive sector and shared his disinterested reservations and apprehensions on the hurdles in the way of level playing field for the industry, which is said to be second to textile industry of the nation.

Former Chairman of PASPIDA for year 2003-04, he joined PASPIDA in 2000 as an Executive Committee Member. He held the office of Central Vice Chairman for the year 2006-07, while chairmanship has been shifted to Quetta.

Graduated from the Institute of Business Administration in 1987, Irfan Ali Sabir has joined his familial business of auto parts dealing specially in electrical auto spare parts and accessories. He is the known Chinese parts importer of Pakistan.

He said, as long as the demand of transportation is increasing at a fast pace day by day across Pakistan individual requirements of having private mode of transportation is simultaneously on the rise. In interior and suburban areas the pace follows the similar speed. This gives stimulus to auto spare parts manufacturers, vendors, and assemblers for bulk production at once. Giving a rough estimate, he informed, 42 assemblers of motorcycle is operating nationwide while 10-12 is one their way to enter market. They import most of the parts from China and assemble them for local use at low price. Erstwhile assemblers i.e. Yamaha and Honda face a stiff competition owing to new entrants and are compelled to maintain price parity, he said adding previously price ranged between Rs. 70,000 to 80,000 of a motorcycle but now free market economy is giving price advantages to end users. This is because of the level playing field being provided to every body, he remarked.

Appreciating the emerging scenario for the automotive sector, he said, assembling plants are also being imported from China. Local and international collaboration has also begun to set up plants in Pakistan. Master Foreman is the assembling plant for mini trucks in Pakistan. Polarization has made possible entries of assembling plants such as Shezore and Kia, he commented. In near future, LCV would be imported from Malaysia. Second hand imported cars such as Vitz, Mini Pajero, and Duet are affecting price level in a sense that now local assemblers are discouraged to keep Own Prices high on assembled cars, which were up to Rs. 200,000 before. Therefore, end customers are having price advantages and variety of brands to select from. Yet, while expressing his apprehension momentarily, he added, due to government's restriction on importing only three year old automated fleet instead of five year would put end users again at disadvantage side because, he thinks, that price of comparatively new unit is high, which subsequently would give local assemblers a stimulus to increase the price level. However, he does not foresee any such situation in next one year as supply is already more than demand.

Commenting on the duty structure of auto parts-turned to be 80 percent-he lamented, to protect local vendors government recently levied 15 percent regulatory duty on all landed auto parts, which are being produced locally. This is other than 35 percent, which was 25 percent before. Ironically, there are few local auto parts' vendors. Agri Industries is the only local manufacturer of shock absorber across Pakistan-one of the item enlisted in TBS. Importers have completely shunned off its import, counted in millions, even then it is available in market.

Regularity Duty has done nothing but given boost to smuggling, which provides duty free competitively cheap items to users. This, on one hand, is giving massive loss to government in lieu of custom and excise duties and worsening the business environment. You can't imagine how much smuggling is taking place due to unnecessary levies. Inadvertently, he said after RD, smugglers are providing auto parts even with six months credit to suppliers. Instead of shortage these parts are easily available.

Local Industries are struggling hard to produce quality products but they are unable to keep the price parity with imported parts. There are wide price differences e.g. bumper is being sold of Rs. 1000 while same Chinese item can be bought in Rs. 600 only. Cost of production is too high. In china, infrastructure is available; cost of production is low. Efficient, sincere, and cheap labor are readily available. Competition is being promoted among industries. Government subsidizes to large scale and short scale manufacturers. Raw material is available. In contrast, even raw material is not available to manufacture quality auto parts in Pakistan.

Vendors or manufacturers are producing only those items, which are ordered by the OEMs. They are least interested in sustainability. Since, old cars are not being scrapped in Pakistan. They need to be repaired, thus, import of auto parts is needed. If they produce otherwise it would not be feasible for them as they have to import raw materials, which swells on their cost of production significantly.

In concluding remarks, he said, government may give them complete protection to auto vendor industry and parts, which are being manufactured locally however an across the board five percent duty should be imposed on imported auto parts in order to wipe out menace of smuggling and to double the revenue. With porous borders, government never knows and reins in influx of illicit trade importers' relief will be a better option to develop a transparent and level playing field for automotive sector of Pakistan.