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Efforts to protect Pakistan's car industry

Publication Date : 08-11-2012

 

The federal industries ministry of Pakistan has stepped up its efforts to lobby with other ministries to reduce the age limit for import of used cars from five-year to three years in a bid to provide protection to local manufacturers.

At the same time, the depreciation limit of used cars will also come down to 24 per cent from the current 48 per cent. This means that importer can now only avail a maximum of 24 per cent depreciation in value of car for assessment of duty and taxes.

This almost half reduction in depreciation and age limit will erode the incentive for importing the used cars altogether. As a result, the used cars imports will be reduced drastically in the coming months.

Last year, more than 56,000 used cars were imported, which not only provide alternative choice for buying cars but also at reduced prices.

An official source in the ministry of industries told Dawn that Federal Minister for Industries Pervaiz Elahi has directed the secretary of industries to take up the issue with the ministry of commerce for immediate reduction in the age limit.

Elahi, who also holds the post of deputy prime minister, also ordered to make the decision immediately.

“First implement the decision, then do studies and other work,” the minister was quoted by the source.

Currently, import of used cars is allowed under three schemes for overseas Pakistanis. However, commercial importers used documents of overseas Pakistanis to import cars on their passports and sell them in the domestic market.

On August 31, the depreciation limit for used cars was reduced to 48 per cent from 60 per cent on the recommendation of the local industries.

Interestingly, the same government on Dec 10, 2010 enhanced the age limit to five years from three with a strong message of displeasure to domestic car assemblers for their constant ignorance to Islamabad’s demand to lower car prices.

The five-year old cars are cheaper than the three-year old ones to be imported under transfer of residence and personal baggage schemes of expatriate having a stay of more than six months abroad and gifts schemes entitled to blood relatives in case of more than two years stay abroad.

However, car prices have not decreased since December 2010, but rather increased manifold.

The only thing that had happened was the change of guard. Federal Minister for Industries Manzoor Watto at that time was replaced by Pervaiz Elahi who now wants to provide protection to local industries.

Chairman, Pakistan Automotive Manufacturers Association, Pervez Ghias, has justified the decision to lower the age limit for the cars. He said nowhere in the region, import of used cars is allowed.

Due to massive import of used cars, demand for locally manufactured cars in the first quarter (July-September) of the current fiscal year declined by over 30 per cent, he maintained.

Ghias said the government has still not realised the impact of rupee depreciation against the yen on imported parts which is forcing local car makers to raise prices on imported completely knocked down kits and other parts. He said from 2007 till to date, yen has appreciated massively.

Contrary to the industry point of view, All-Pakistan Motor Dealers Association chairman H.M. Shahzad told Dawn that the government intension to again reduce the age limit will hurt the masses.

He said that the import of used cars had not only yielded an additional revenue 33 billion rupees (US$343.93 million) to government, but also provided cheaper cars to common consumers.

“We will support government to completely ban import of all cars in case the local assembler manufacture Made in Pakistan cars,” Shahzad said.

There is no choice with local buyers as the small cars like Alto and Cuore production has also been discontinued.

“We are also stakeholders and the government should also seek our opinion before making any final decision,” the dealers association said.

A total of 72,000 used cars and other vehicles imported under transfer of residence, personal baggage and gift schemes had arrived in 2005-06. At that time, the government had allowed import of 10 years old vehicles.

But after a strong representation from the local assemblers, the imports have been continuously falling sharply.

In 2006-07, the age limit was reduced to five years and imports fell to 42,000 units. In 2007-08, the age limit was further slashed to three years.

In 2008-09, the government had imposed 50 per cent regulatory duty followed by 12.5 per cent increase in customs duty and cut in depreciation to one per cent from two per cent.

 

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