Karachi (October 25, 2017): The imposition of regulatory duty on 350-plus items last week sent the country’s business community in frenzy.
Car importers, whose entire business is to sell fully-assembled vehicles in the country at a premium, felt hard done by as regulatory duty on vehicles across each category was increased by 15%.
However, through a notification released by the Ministry of Commerce later, it was revealed that the higher rates of duty would also be applied to import of used cars over 1,800cc, negating the earlier impression that the revised rate was just for new vehicles.
In panic mode on Monday, the first working day after the notification was circulated, importers reacted in the most obvious way possible – they criticised the government’s move and argued how it would hurt the national economy.
The imposition of duty on the import of used cars will reduce the number by 14,000-15,000 a year, said industry players. “This is going to badly hurt the business of used car importers, but the government will also lose up to Rs20-25 billion in revenue per year (due to lower volume),” said All Pakistan Motor Dealers Association (APMDA) Chairman HM Shahzad. Importers say the ministry has notified the changes in procedure to import vehicles under the personal baggage, transfer of residence and gift schemes.
According to the new rules, importers say, the owners of all new and used vehicles with an engine capacity of 1,800cc or over will now need to pay duties and taxes themselves or by local recipients supported by a bank encashment certificate showing conversion of foreign remittances to the local currency.
Car importers have been importing used vehicles through three major schemes; personal baggage, transfer of residence, and gift scheme. However, most of the vehicles come under the personal baggage scheme, earning concessions.
But changing dynamics of the economy, which have seen the country’s foreign exchange reserves decline drastically and raised fears of another balance of payments crisis, have meant that the government has been forced to take action.
To control the growing import bill, the government enhanced regulatory duty by up to 350% on 356 essential and luxury items. Pakistan’s import bill has crossed $53 billion at a time when the country is unable to increase exports, resulting in a ballooning trade deficit of $32.6 billion in fiscal year ended June 30, 2017.
Analysts say Pakistan does not even import 1,500 brand new vehicles a year. However, the country imported about 65,000 used cars in fiscal year 2017 compared to about 56,000 units in the previous year.
Since the new measures now also include used vehicles of 1,800cc or above, it seems that the government would succeed in discouraging the growing import of used cars.
Local car industry officials and money changers have long been blaming used car importers for hurting the national economy as they take out dollars from the local market through illegal means.
Recently, leading money changers have urged the government to restrict the ballooning used car imports if it wants to maintain the rupee-dollar parity in the open market. Due to political uncertainty in recent months, the State Bank of Pakistan (SBP) has been trying to control the value of dollar in the open market.
Import duty on eatables, luxury items raised by up to 350pc
Pakistan imports over 60,000 used cars a year worth between $300 million to $500 million, according to a recent report of Topline Securities. However, according to the calculations of local car industry officials, Pakistan is spending close to $750 million a year on used car imports.
The commerce ministry had estimated the additional impact of the regulatory duty at over Rs22 billion. However, due to the inclusion of vehicles, the collection may increase.
Since the government charges sales tax and withholding taxes by including all kinds of duties in prices, the total impact of the change in duty rates will be over Rs40 billion, according to FBR officials. Authorities are estimating that the additional duties may help contain imports from around $300 million to $400 million during the current fiscal year 2018.
