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Import of used cars — An unfair advantage at the cost of domestic industry

Published on 20th Apr, Edition 16, 2015


PAMA submits proposals for budget 2015-16

The automobile industry which has developed sufficient capacity to cater to the needs of automobile market is experiencing the pinch of the unfair advantage being given to the importers of the used cars at the cost of the local industry.

It is surprising that instead strengthening the base of the domestic auto industry that generates a huge number of job opportunities besides imparting training and skill to the youth at various training centers in the country has been deprived of the opportunities to play its due role in the fast track development of the engineering industry as well as contributing its share in the exports of auto parts and locally manufactured vehicles.

The representative of country’s automobile industry Pakistan Automotive Manufacturers Association (PAMA) has sent comprehensive budget proposal to the Ministry of Finance highlighting some of the impediments to growth and further investments, with a request to remove the tariff anomalies in the upcoming budget.

The prime focus of the proposal is on unfair advantages being given to the used car importers which are inflicting a heavy damage on not only the local industry but the national exchequer as well which is facing heavy losses due to the rampant under invoicing and misuse of used car import policies.

Anomalies in duty and taxes

“Under SRO 577(I)/2005, duties and taxes rates were fixed in US dollars way back in year 2005 and, except once in 2008, were not appropriately revised, whereas, ever since the prices of used vehicles have increased substantially. The fixed duties under SRO 577 are substantially lower than the duties under the normal regime,” the proposal said.

SRO 577 (I)/2005 was indeed an oddity not permitted by the law and has been a cause of substantial loss in the revenues and although so pointed out, yet no action was taken so far. “If the SRO, cannot be abolished completely, it may be updated to bring the fixed amount of duty and taxes at par with the reality of the time. It is an irony that whereas the exchequer is losing revenues rather “deliberately” which it is otherwise so profoundly sought!,” the proposal said while requesting that the SRO may be revised and updated in consultation with the industry.

The proposal also says that under SRO 499 (I)/2013, Hybrid vehicles are allowed to be imported at a concessionary rate of duties and taxes in Complete Built-up Unit (CBU) condition only. PAMA proposes the existing concession to CBUs be likewise extended to imports of auto parts and CKD kits enabling local production of similar hybrid vehicles.

This concession will lead to introduction of locally manufactured hybrid vehicle in Pakistan which will reduce the import bill as CBU Hybrid vehicles costs considerably higher than their CKDs. Also, it will generate employment at OEMs and the vendors as many parts of hybrid vehicles can also be localized.

SRO 499(1)/2013 dated June 12, 2013 provide relief from custom duty, sales tax and income tax only on import of Hybrid Electric Vehicles. Local sale of these vehicles by a registered person is subject to sales tax at normal rate i.e. 17%. There is, therefore a discrimination that import by an unregistered dealer will be cheaper than import and local sale by the OEMs, which would attract local sales tax, as aforesaid. The SRO 499(I)/ 2013 should be amended to allow relief of sales tax on both import stage as well as on local supplies.


By eliminating this undue advantage to unregistered dealers, the new OEM imported hybrid electric vehicles will become more affordable for the consumers and will also provide fuel efficiencies as targeted by the government with additional revenue to the government on import and sale of such vehicles.

The proposal also talked about the import of auto parts on per kilogram basis in accordance with the unit of measure “Kg” prescribed under column 4 of the First Schedule to the Customs Act, which indirectly facilitates under-invoicing of value added auto parts.

“This is a distortion that items like Bumpers and Radiators are being assessed on per kg basis besides a large number of other value added items. Such method of assessment is farce and the delinquents thrive on the same while it beats genuine businesses,” the proposal said adding that the change in UoM as unit (u) will ensure proper assessment of auto parts, curb under invoicing and increase government revenue while also enabling authorities to ad valorem assessment of high value added items whereas the existing system promotes incorrect declaration of value by the unorganized sector which results in unhealthy competition.

The proposal also said that certain categories of steel materials (sheets) which are not manufactured locally have been inadvertently included in SRO 568(1)/2014 dated June 26, 2014 put Levy of Regulatory Duty on steel products under following HS codes via two amendment SROs namely SRO 131(I)/2015 dated 12-02-2015 and SRO 246(I)/2015 dated 27-03-2015.

Steel sheet is required as raw material for manufacturing automotive components. While including the list of steel materials under SRO 568, the exemptions already available to the auto industry have been ignored, resulting in discouraging localization of such materials and reverting to imports, which hopefully was not the intention.

PAMA proposes to include imports made under SRO 655(I)/2006 as exempt from regulatory duty under SRO 568(I)/2014, (RD notification) as such exemption has also been given to other sectors such as imports covered under 678(I)/2004.

“Under invoicing from China is now a common knowledge,” PAMA proposal said while suggesting to fix minimum duty on Chinese vehicles in consultation with local industry and the original equipment manufacturer operating in China. “This would provide level playing field to the industry and increase government revenues,” the proposal added.

To promote the localization, increase revenue of government and have fair competition, under-invoicing needs to be curbed strongly. The incorrect declaration of value by the unorganized sector results in unhealthy competition.

“Valuation rulings should only be issued after a formal and documented consultation with genuine stakeholders like PAMA, PAAPAM & EDB. This will enable authorities to ad valorem assessment of high value added items and increase government revenue while at the same time helps reduce the impact of undervalued imports,” the proposal further added.


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