Illegal auto part sales cost Rs10 billion to national exchequer

Smuggling, misdeclaration, under invoicing and illegal sale of counterfeited auto parts; result in an annual loss of over Rs10 billion to public exchequer. Poor enforcement of intellectual property laws has provided this illegal trade an opportunity to capture nearly 87 per cent of the market share. Auto industry data made available to Profit show that legitimate or documented auto parts manufacturing sector has only 13 per cent (Rs3.3 billion) share out of the total Rs25 billion auto parts market in the country.
Estimates indicate that importers are marketing around 64 per cent or Rs16 billion worth auto parts on which duty and taxes have been evaded through misdeclaration or under invoicing. Similarly, nearly 15 per cent or Rs3.8 billion worth auto parts are entering Pakistan through illegal channels, whereas, around eight per cent or Rs2 billion worth spare parts are being manufactured locally by uncertified small manufacturers.
Industry leaders claim that conservative numbers suggest that around 80 per cent auto spare parts being sold in domestic markets are either imported through illegal channels or manufactured locally. But importers and traders are openly deceiving consumers by marketing these smuggled or sub-standard auto parts with trademarks of their original manufacturers as the country has virtually no compliance of intellectual property regulations.
Figures reveal that on the one hand, three original equipment manufacturers (OEMs) – Toyota, Honda and Suzuki have a market share of Rs1.64 billion, Rs720 million and Rs1 billion, respectively. On the other hand, annual sales of counterfeit auto parts is hovering around Rs21.57 billion, which accounts for 87 per cent of total auto parts market.
Highlighting the illegal import channels, industry experts pointed out that majority of smuggled auto parts were entering Pakistan via Dubai-Iran-Afghanistan to Chama or Thorkhum and Iran to Baluchistan to Karachi. In addition, importers in connivance with customs and port authorities were importing huge quantities on which due duties and taxes were being evaded through misdeclaration and under invoicing, they alleged.
A comparison of duty and taxes paid by OEMs and other auto part importers also highlights alarming discrepancies. Figures show that if an auto parts container is imported by some registered OEM, it has to pay some Rs2-3 million on account of Customs Duty, Sales Tax and other levies, whereas, commercial importer imports the same container by paying duty and taxes of Rs0.5 to Rs0.7 million.
Accumulated figures show OEMs that hold only 13 per cent auto part market contribute some Rs425 million per annum towards national exchequer, while the commercial importers with the market share of around 64 per cent pay Rs43.2 million per annum on account of Customs Duty, General Sales Tax, Income Tax and other levies.
Estimates show that auto parts smuggling costs national exchequer some Rs1.59 billion per annum, while sales of counterfeit parts cause a loss of Rs1.06 billion. Misdeclaration and under invoicing is another grey area that results in the loss of about Rs7.68 billion per annum to public exchequer.