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Budget: Ban on used cars import on cards
Amanullah Khan
Karachi—A ban on import of used cars is on cards in the federal
budget 2008-09 but the personal baggage scheme would remain intact.
Informed sources told Pakistan Observer that import of used cars is
threatening the economic and commercial viability of the local
automobile industry.
The import of used car was allowed to ease the pressure of growing
demand in the country till last year. However, due to drastic cut in
demand and sales of the local cars there seems no point of importing
used cars as the local automobile industry has reached at a surplus
stage.
The local automobile industry has invested billions of rupees for
expansion of production and the capacity is sufficient to cater to
the market demand.
Meanwhile, the local industry has strongly recommended certain
proposals for incorporation in the forthcoming budget 2008-09 to
overcome the difficulties being faced by the auto industry in view
of declining demand, increasing financial charges due to high rate
of bank financing and sky high oil prices which causing severe
impact on the auto industry.
These proposals forwarded to the budget makers said that by the end
of year 2006, the government had a great deal of engagement with the
industry and policy package AIDP (Auto Industry Development
Prgoramme) was approved, which, interalia, included a pre-announced
tariff for a period of five years. However, an entirely new levy
which figured nowhere in the AIDP in the shape of 2.5% Withholding
Tax alongwith 1% Federal Excise duty were imposed.
The auto industry has demanded of the government for withdrawal of
2.5% Withholding Tax and 1% Federal Excise duty on purchase of
locally produced vehicles, as this is a deviation from the agreed
position under the AIDP and consistency in the policies.
The Auto industry, during he last 05 years, has been consistently
increasing the capacity and the current capacity higher than demand
and as such there is no need of used cars import. Accordingly, it is
recommended that Import of Used Vehicles should be further
restricted by application of non-tariff barriers as in India and
Thailand, reduction on depreciation from 2% per month to 1% p.m
subject to a maximum of 25%, registration of vehicles in name of
returning Pakistani for atleast 1 year, reducing used vehicle life
from 3 years to 2 years and complete abolition of Gift Scheme.
The auto industry also demanded of the government that the Sales Tax
at Retail Stage steps be taken in consultation with the industry by
the Government to control this. We would also suggest to impose
Sales Tax at Retail stage on spare parts for automotive vehicles
across the board.
All claims paid by the Insurance Company in relation to Vehicle
Repair should be allowed to the Insurance Company as an allowable
expense only if the expense is supported by a Sales Tax Invoice for
Spare Parts purchase. This will automatically channel the Vehicle
Repairs and parts purchases through a Registered Workshop / Spare
Parts Retailer. This will bring about documentation to some extent
in this area. Used Auto-Parts / Scrap: Smuggling and import of used
auto parts pose a major problem to local auto-industry. It is
therefore proposed that both smuggling and import of used auto-parts
as scrap or otherwise should be stopped.
The recent years have witnessed phenomenal 50 percent compounded
growth in the local auto-industry with solid indication of further
growth. Keeping this trend in view the government has positively
responded and has recently approved AIDP with the aim at doubling
the contribution of auto industry to GDP and its turn over to Rs.
600 billion in the next five years and reaching to an export level
of USD 350 million for components mostly to the international after
market and to the OEMs. It is therefore proposed the government
pronouncement of auto-related tariff for the next five years in
respect of Cars/Lcvs may be made part of Finance Act 2008 so that
both government and industry pursue their respective commitments for
the projected growth of auto-industry as envisaged under AIDP.
In the AIDP, it was proposed that Sub-assemblies were to be
localized in next 2 to 4 years.
Auto industrialists point out that sale assemblies have negative
value addition and do not generate employment.
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