Sep 14 - 20, 2009

Import policy order 2009 rained down bombshells on dealers of vehicles imported under personal baggage, transfer of residence, and gift schemes as it brought about certain measures that threatened the sale growth of imported brand new and second hand vehicles in Pakistan. According to import policy order dated 4th September 2009, vehicles of more than three years old would not be allowed under gift, personal baggage, and transfer of residence schemes. Second hand or used passenger transport vehicles including buses, trucks, and static road rollers of 10 to 12 tons capacity would not be allowed. Already a duty structure upward revision and reduction of depreciation rate announced in budget 2009-10 have turned upside down the sale of importers who are disappointed of government's alleged partial leaning toward local assemblers of automobiles. The propensity to promote local automobile industry is justified if it were to give price advantage to customers of local cars or to save foreign exchange. But, unfortunately the offshoot of this protectionism was increase in prices of local assembled motorcars. Though, local assemblers brought down the prices of passenger cars, the reduction was not in proportion to increase made last year on the pretext of rise in steel prices and rupee devaluation.

Automobile importers are of the view that they can give tough price competition to local assemblers if government relaxes certain restrictions put on in the trade policy and current budget to protect local assemblers. Local assembly line is yet to acquire manufacturing capacity. "We can provide brand new motorcars labeled 'made in Japan' in prices lower than that of locally-assembled ones and competitive-priced second hand vehicles if government reviews duty structure, which increased to 360 percent from 120 percent, and depreciation that decreased to one percent from 2 percent in this budget," says HM Shahzad, Chairman All Pakistan Motors Dealers Association.

As per custom duty structure 2009-10, motor vehicles principally designed for the transport of less than ten persons invite twenty to 100 percent custom duties. A double-edged sword cuts market shares of imported vehicles. On one hand, heavy duty on imported vehicles is levied and deprecation cutback on second hand cars adds significant amount to final value on the other. Instead of rendering nation loss of foreign exchange, imports under baggage and gift schemes contribute substantial revenue to national exchequer in shape of custom duties, contends Shahzad in an interview. It does not cause flight of capital because the vehicles land in the country under the special incentive program gift and baggage scheme given to expatriates who originally pay the price of units, he says adding no letter of credit is opened for the consignments.

Custom duties were the second biggest contributor in indirect tax revenue after sales tax during July-June 2008-09, contributing 145 billion rupees. Government has set Rs162.20 billion target of customs in budget 2009-10. Federal Board of Revenue collects a major chunk of custom duties from imported motorcars and jeeps. During July-March 2008-09, dutiable import of motorcars and jeeps (CKDs & SKDs) nosedived by 28.1 percent over comparable period, affecting the collection of custom duties adversely by 32 percent or Rs4.2 billion. Custom duties collection from vehicles used for transportation of goods dropped by Rs680 million.

Cut in age-limit and revision of duty structure discouraged imports of complete-built units (CBUs) in the country. Demand slump has decreased the arrival of complete-knocked down (CKD) and semi-knocked down (SKD) vehicles in to the country. Imports of complete built units of buses, trucks, motorcars, and motorcycles amounted to $8.9 million in July 2009, down 57.6 percent over imports of $21 million in July 2008. During the first month of financial year 2009-10, $5.8 million was spent on import of only motorcars while in the corresponding month last fiscal year (2008-09) $12.1 million CBUs (motorcars) imports were recorded. However, in this month imports of semi-knocked down and complete-knocked down motorcars swelled up to $21.2 million by 143.7 percent from $8.7 million in July 2008. Imports of all CKDs and SKDs were up by 91.1 percent in July 2009 over July 2008. Total imports of CBUs amounted to $96.99 million during FY09 as against $250.45 million in FY08. In this category, imports of cars witnessed substantial decline to $50.33 million from $131.14 million. Imports of CKDs also decreased to $457.37 million in last fiscal year from $573.24 million earlier. Only imports of road motor vehicles comprising CBUs, CKDs, SKDs, and auto parts recorded a decrease of 300 million dollars to $639.96 million in July-June 2008-09 from $931.7 million in July-June 2007-08.

Personal baggage, transfer of residence, and gift schemes are for Pakistani nationals who reside abroad and including a person with dual nationality, and a foreign national of Indo-Pakistan origin holding Pakistani origin card. One of the conditions of import is that a vehicle may be gifted only to family member. It does not imply that it can not be resold in Pakistan or re-exported. HM Shahzad says there is no such limitation of resale of vehicles imported under any of three schemes, adding but this import facility is only for overseas Pakistanis. Do imported vehicles pose a threat to local automobile industry? Advocates of imports refuse plainly. According to them imported motorcar, even with contribution of significant custom duties to tax-pool, can be a quality substitute of local assembled cars. There are complaints of bad quality of local assembled motorcars as compared to their international alternatives. Antagonists of automobile imports vie for continuity in protectionism regime to strengthen foothold of local automobile and allied industry. It is said that local auto parts suppliers are directly affected by free market. State safeguard cannot be termed an aberration from world trade rules since developed nations are also shoring up their sagging automobile industries in the face of assets deterioration. However, the question is can pampering elevate the standard of indigenous automobile industry? Or is there a need to realign strategies to attract automobile technologies from across the border to improve standards?