Naveed Ahmad Khan
The government has recently announced to reduce truck load by 50% without realizing the devastating impact it will have on more than 45 local industries.
Let’s start with the transport industry. Currently, Pakistan has approximately 330,000 Trucks on the road (310,000 trucks and 20,000 oil tankers). And after this axle limitation, Pakistan would need at least 200,000 additional trucks to cater to the transportation of heavyweight products. Since Pakistan’s domestic trucks production is approximately 9000 to 10,000 units per annum, it will take at least 20 to 25 years to meet Pakistan’s trucks demand domestically.
Or we would need around $12.5 billion to import the required unit of trucks and it will take at least 2 to 3 years, which means a huge slowdown of economic cycle affecting every economic and social sector.
Besides, Pakistan imports approximately 90% of truck tyres with an average cost of $220/tyre so there would be a need of an additional $1 billion per annum to import tyres for two lac trucks. Similarly, an additional $4 to 5 billion would be required to import oil for additional 200,000 trucks excluding spare-parts’ import bill.
The oil industry will also get affected by this limitation. Approximately 20,000 oil tankers are used to transport oil within the country out of which 10,000 oil tankers are axle load compliant.
After the implementation of this axle load limit, Pakistan would need another 5000 oil tankers to meet the fuel requirement.
This would create the shortage of fuel of around 20 to 25 percent in the country, leading to oil price hike, black marketing, and high industrial and commuting cost.
Moreover, higher freight will result in higher prices of commodities to badly impact the common man’s life. The government will also face a shortfall of 25 percent tax revenue from oil marketing companies.
The said limitation will reduce cement supplies as well. The cement industry’s average annual domestic sales are 42 million tons with an approximate revenue contribution of Rs 158 billion (sales tax and FED revenue). After this limitation regime, the cement industry will face sales drop from 42 million tons to 20 million tons and that would result in a revenue shortfall of approximately Rs 71 billion per annum in the head of Sales Tax and FED.
The prices of cement will also witness increase as high freight of raw material will result in high input cost for the industry. This situation will slow down the entire construction industry including infrastructure projects like dams, roads, and bridges.
Our policy makers are unaware of the fact that reduction in cement supplies will negatively impact the sales (and revenue to the government) of many industries including steel, tiles, bricks & blocks, electric cables and wires, wood and furniture, lighting and bulb, electrical and consumer electronics, kitchenware and sanitary fitting industries etc.
This regulation would also affect steel industry. The steel industry through its total consumption of 3 to 3.5 million tons per annum generates tax revenue of Rs 32 billion for the government. And after the axle load regulation, the revenue shortfall will be of Rs 12 to 15 billion per annum. So one can imagine how big the loss will be.
The steel industry imports almost 100% of raw material, therefore, the axle load regime will increase the transportation cost by 100% (from port to factories across the country) for the industry. And this will have a minimum of 20% increase in the input cost of the steel industry, which will further hike prices.
The agriculture sector is likely to be the most affected sector of this axle load regime due to 40 to 50 percent reduction in DAP and fertilizer supplies. The agriculture produce will be reduced by 30 to 40 percent which will lead to food shortages and high prices in the country and consequently a civil unrest.
This will also create shortage of wheat and sugar as their supplies will be affected due to shortage of trucks, leading to a complete disaster. The shortage of trucks will give a huge rise to unemployment as millions of skilled and unskilled jobs will be lost in the 45 plus industries.
Hence, a huge cut in consumer spending will directly affect the collection of indirect taxes on all the consumer’s products.