Car import policy abused by dealers

LAHORE – Though most tax related laws in the country are being abused, no law is being flouted with the same frequency as “the personal baggage, transfer of residence and gift schemes (import of vehicles)”.
Automobile manufacturers believe that it is not only causing a loss running into billions of rupees to national exchequer but also threatening the viability of the local automobile and vending industry. The recent decision of the federal government (which has been declared void now) to raise the import ‘age limit’ of used cars from three years to five years has revealed some very interesting facts.
Official figures show that Pakistan imported some 4,000 used vehicles during previous year, but car dealers claim that to push home the advantage on the policy change, they had booked some 7,000 to 8,000 units of used vehicles, worth around Rs 10 billion ($116 million), in merely a month. Car dealers are livid that the government’s u-turn on used car import policy, at a time when they have committed an investment of billions of rupees in foreign markets.
Experts argue that one can easily detect a discrepancy in the used cars import policy. They draw attention to the fact that while in the previous year the country had imported only 4,000 cars, dealers claim they have booked orders for 8,000 units in just one month. The alarming disparity casts doubt whether the law is actually addressing legitimate demand or being misused by car dealers.
Experts said that the personal baggage, transfer of residence and gift schemes is meant to facilitate Pakistani expatriates, who want to import vehicles for their own usage or their families. They pointed out that under the special regime; taxes are levied on the basis of engine capacity, irrespective of the value of the vehicle and the optional and additional accessories, which might be justified if rules were being implemented in true letter and spirit.
They point out that car prices of two different brands could not possibly be the same in all cases. “It is really strange if the Federal Board of Revenue (FBR) believes that a 1,000CC variant of BMW and Suzuki has the same price,” experts argue. Another interesting aspect is that Pakistan has the most liberal car import policy in the region.
Data available to Pakistan Today shows Pakistan levies a 50 percent duty on new car import up to 800CC, 55 percent on 801CC to 1,000CC, 60 percent on 1,001CC to 1,500CC, 75 percent on 1,501 to 1,800CC and 100 percent on cars having engine capacity of over 1,800CC (plus 50 percent Regulatory Duty), while India has 100 percent customs duty on all car imports irrespective of their engine capacity and brand.
In addition, India charges 12.5 percent VAT, 16.5 percent Excise Duty and other Para-Tariffs, including 16 percent CVD, four percent SCVD and three percent Education Cess. Similarly, auto manufacturer in Thailand also enjoy a stringently protectionist regime with Thailand levying 80 percent Customs Duty, 30 to 50 percent in the form of additional taxes and 17 percent in other taxes on new car imports.
Data shows that auto manufacturers in India have the most protectionist regime in the region. Figures show in India complete knock-down (CKD) kits could be imported on five to 10 percent duty, in Thailand CKD kits are imported at 32 percent duty while import duty rate on CKD kits is 32.5 percent, which is the highest.
A similar situation is with the import of used cars. Data shows that irrespective of the make and brand, Pakistan has fixed import duty of $2,816 on cars up to 800CC, $3520 on cars having engine capacity between 801CC to 1,000CC, $7,040 on 1,001CC to 1,300CC, $9,856 on 1,301CC to 1,500CC, $11,968 on 1,500CC to 1,600CC and $14,784 on cars having engine capacity between 1,601CC to 1,800CC, while in India used cars have 100 percent basic import duty plus 32 percent addition duty and taxes and Thailand has same duty structure as for new cars.
In addition, both India and Thailand has several other non-tariff barriers to discourage car imports. Experts said that the government wanted to attract foreign investment in the automobile sector to promote the healthy competition, but in the present circumstances with existing car import policy in place, it seems to be a far fetched scenario.