LAHORE – The Ministry of Commerce (MoC) has directed the Federal Board of Revenue (FBR) to implement the Economic Coordination Committee’s (ECC) decision on rationalising the prices of locally manufactured cars. The ministry has called on the FBR to enhance the depreciation value cap from 50 percent to 60 percent for car imports. This would essentially mean that the price of imported cars will be further reduced in the local markets. Official documents made available to Pakistan Today show that the Ministry of Commerce through its letter, No I(23)/2010-SO(TP) dated March 7, 2011, has requested the FBR chairman to issue amendment in the relevant notification and report back to the ministry.
However, informed sources claim that the FBR is reluctant to issue the notification as it is already facing hard times in convincing the International Monetary Fund (IMF) and other donor about the tax collection target. The IMF and even the FBR in Islamabad fear that the government may not achieve its tax collection target during the current fiscal year, sources added. They say that the tax department is already aware of losses sustained by the national exchequer owing to the relaxation in the car import policy. They point out that the International Monetary Fund (IMF) has also expressed its reservation after reviewing the tax collection data of the first eight months of the current fiscal year.
According to the ECC of the cabinet decision, “Depreciation in assessable value shall be at the level of one percent per month up to a maximum of 60 percent on import of cars.” Earlier, this depreciation cap was to be a maximum of 50 percent. The ECC in its decision asked the Ministry of Commerce to make a detailed presentation on the import of buses and enhancement in the age limit of trucks, tractors, vans and buses from three to five years. In addition, the ECC has directed the Ministry of Industries and Production to make a detailed presentation on the reduction of duty on completely knocked down (CKD) kits for new entrants after consultation with relevant stakeholders.
Furthermore, ECC has directed the preparation of a comprehensive transport policy, which will be submitted before the cabinet for approval. Figures released by the Pakistan Automotive Manufacturers Association (PAMA) indicate that car sales witnessed a sharp decline of 33 percent during the last five years, owing to multiple challenges, including the continuing depreciation of the rupee against US dollar and Japanese yen, limited car financing and an increase in the prices of raw materials. Figures show that in 2005-06 a total of 218,945 cars and light commercial vehicles (LCV) were sold in Pakistan, of which 184,916 units were manufactured locally and the rest were second hand vehicles imported under Gift, Baggage and Transfer of Residence Scheme. While in 2009-10 cars and LCV sales dropped to a total of 145,819 or 33.39 percent out of which 140,453 vehicles were manufactured locally, a decline of over 24 percent.
An analysis of various economic indicators shows that large scale manufacturing and other allied sectors of the economy, including banking, finance and insurance, have also witnessed a negative growth during the last five years. Figures released in the Economic Survey of Pakistan 2009-10 show that large scale manufacturing growth dropped by roughly 50 percent during the last five years as in 2005-06 large scale manufacturing growth was 8.3 percent, which dropped to 4.4 percent in 2009-10.
Similarly, banking, finance and insurance sectors growth witnessed a decline of 108.39 percent mainly due to increase in mark-up rates and discontinuation of consumer financing.
Figures indicate that banking, finance and insurance sectors growth shrunk from 42.9 percent in 2005-06 to -3.6 percent in 2009-10. In addition, bank credit to private sector was dropped from 34.4 percent to 0.7 percent during the same period. Official figures show that during the period under review core inflation witnessed a sharp increase from 7.5 percent to 13.3 percent in 2009-10. Industry experts believe that automobile and auto vending industry was already in trouble. Most auto manufacturing units had already been closed down owing to poor economic policies and only four or five manufacturing facilities were operational. Experts point out that out of three major Japanese car manufacturers, two are already posting losses in their financial results.
This poses a major challenge for economic planners in developing a feasible framework for operations for the engineering sector which is major driver of economic activity in the world market.
