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11,000 used cars imported in 2012-13 hitting badly to domestic automobile industry

Published on 27th Jan, Edition 4, 2014

 

The automobile industry is considered as the mother of engineering industry instrumental in building up all the developed economies to the current status. It is, however, unfortunate that the situation in Pakistan is quite different and instead of building up our own automobile industry, the policy makers have a visible leaning towards imports of used cars on the pretext of controlling price inflation in the automotive industry.

In fact there are certain grey areas, which need to be addressed in the interest of the local industry and the overall national economy. For example the domestic automobile industry, which have their affiliation to their parent companies abroad were never asked to ensure at least a certain percentage of production to export or buyback so that the production could be enhanced at the economy of scale, which is key in bringing down the prices of any product.

Recently, when I had an opportunity to visit Sri Lanka, a large number of Indian cars besides other Japanese, Chinese and Korean cars were plying on roads but in Pakistan the export side of locally-produced cars was never focused, which is an important area to be addressed so that the size of production could be enhanced to bring down the prices. The solution of bringing down the price factor is not in imports of used cars but in the mass production of cars, which would help building up not only automobile sector but supportive for over 41 job-oriented allied industries.

The policy makers generally make tall claims for building up the economy but practically speaking the policies are made to shatter the confidence of the local investors. Flow of investment is one of the areas, which is essentially needed for economic stability and for financial health of the country. It was shocking to note that in the last financial year, the number of import of used car exceeded to 11,000 cars leaving no room for survival of the local automotive industry. It is the time for the policy makers to make decisions in the interest of Pakistan and its economy, which is in the bad shape due to bad policies. Slogans only may not work to build up the economy and reduce poverty level and alarming rise of unemployment, which is one of the reasons of rising crime rate and law and order in our country. It is important to note that the vendor industry, which provides a base for domestic auto makers provide jobs to millions of the people across the country, if the local products were not given a helping hand, the manufacturing sector is feared to phase gradually leaving behind serious consequences on the socio-economic fronts.

It may be noted that the Director General, Pakistan Automotive Manufacturers Association (PAMA) has also expressed serious concern at the raging pace of import of used cars.

In the first half of outgoing year (2013) the figures was 5,512 units and in the second half the figure almost doubled to 11,314 units for which there was no apparent justification except massive abuse of the facility by the traders. The import and detention, at the port, of over one thousand units of cars, with more than permissible age limit, is a case in point whereas only this much have been detained may more such offending vehicles might have been released in the past.

 

Speaking to the media, Director General PAMA said: “Local industry has been highlighting the abuse of the schemes meant for overseas Pakistanis but unfortunately no action was taken against the unscrupulous importers who have continued with their illegal activities unchecked. Regrettably, now they have crossed all limits by in one go importing one thousand overage cars in blatant violation of the law. All such offending vehicles must be confiscated and criminal cases be instituted against the offenders of the law.”

DG PAMA shared that over 12,000 all types used vehicles were imported during first half of FY14, which is over 12 percent of the total market. As there is partial exemption in duty and taxes available to used cars, the huge volume of imports has deprived government of over Rs7 billion in duty/taxes due to lower duty fixed as per SRO 577 back in 2005. It is an irony that there is much higher amount of duty on a locally manufactured car than a comparable imported used car.

“It’s going to be a decade now since the amount of duty on used vehicles was fixed in SRO 577; world has changed since in terms of vehicle technology, rise in the prices of steel, aluminum, rubber and plastics and the vehicle prices have also gone up globally; the contents of the SRO reflecting amount of duty has remained unchanged, notwithstanding.”

The local industry is offering brand new vehicles at the most competitive prices with complete warranty and comprehensive after sales support thereby protecting consumer interests. In the process, the local industry provides more than 1.3 million jobs directly and indirectly and makes 2.8 percent contribution to the GDP. Industry continues to make sizeable investments in introducing new models, which stands at staggering Rs92 billion. All this translates into over Rs80 billion annually in tax revenue to the national exchequer, which would go up further with increase in the volumes.

The industry is deeply concerned over these imports, which are in violation of the law and appreciates FBR and the customs authorities for not clearing the over age vehicles. Such used vehicles are neither in the interest of the consumer nor in the economy in general as it costs excessively to the economy to maintain such vehicles, who have spends their prime life overseas and they would soon end up in the junkyard. Already government continues to allow up to 5-year-old luxury vehicles mostly luxury SUV like Land Cruisers, which also have fixed lower duty and thus deprived the government of revenues.
The auto industry of the county is a victim of uncertainty since 2008 due to government policies often changing and therefore has not revived yet. The industry’s revival and huge investment that is linked therewith is waiting for a long term stable policy by the government. But it is for the authorities to understand that manufacturing and trading cannot coexist and that often repeated episodes of gratifying the traders with the booty of liberalized used car policy will ruin the industry.

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