500% more taxes on imported cars

ISLAMABAD:

In startling revelations, the government has imposed up to 500% additional taxes on imported cars to protect local car assemblers from foreign competition. In return, however, assemblers passed on the agony by overcharging consumers and delaying deliveries for up to a year.

The revelations came during a meeting of the Public Accounts Committee (PAC) – the parliamentary watchdog – prompting the committee to recommend a review of undue protection helping said companies defraud consumers.

The PAC recommended that the government remove the status of “manufacturers” instead of calling them (and treating them) as “assemblers” – a directive, if made into law, will help reduce the levels of protection enjoyed the assemblers.

Under the CAP, protection is provided through the imposition of customs duties, additional customs duties, sales taxes, additional sales taxes, federal excise duties and income taxes on rates much higher than those applied to the import of parts for locally assembled cars.

Local assemblers enjoy 241% to 500% protection, Mujtaba Memon, the special secretary for commerce, revealed.

“Before the recent imposition of additional duties, the level of protection was between 100% and 390%,” he said.

Led by Noor Alam Khan, the PAC found that local auto assemblers failed to honor their commitments, overcharged consumers by forcing them to pay a higher price than set at the time of booking, and delayed deliveries for over a year.

The PAC ordered the Ministry of Industry and the Ministry of Commerce to review the protection and develop a policy within a month to resolve the problems encountered. He also asked them to charge lower federal excise duty rates than those on imported cars.

Industries Secretary Imdadullah Bosal said: “Any change in tariff policy at this stage may upset major manufacturers, but the government will try to come up with a comprehensive policy within a month to end the exploitation of consumers.” .

The PAC ordered companies to deliver vehicles within a month in cases where full payment had been received. He also recommended reducing the overall delivery time to one month and if the vehicle is not provided, the company would pay a late delivery fee.

Bosal said: “The company cannot take more than 20% in advance and delivery must be made within two months. If the delay exceeds two months, the company must pay a fine equal to the Interbank Offered Rate in Karachi (Kibor) plus 3%. The companies paid Rs 1.9 billion in fines into this account between the period November 2021 to April 2022.”

If the companies do not improve the delivery time, the PAC has recommended that the government reduce taxes on imported cars from 800 cc to 1,300 cc to encourage competition. He further ordered the government to raise the age limit for imported cars from three to five years and ordered the FBR to audit the accounts of car assemblers.

“Authorized imports should be less than the production capacity of local auto assemblers,” Pakistani Senator Tehreek-i-Insaf Mohsin Aziz suggested.

To which the Secretaries of Industries said that “compared to the total production capacity of 506,000 units per year, these companies cumulatively assembled 330,000 units in the previous financial year”.

“The Ministry of Industry is working on a proposal to prevent companies from reserving vehicles with delivery times of more than two to three months, and vehicles should be purchased from wholesalers rather than car assemblers “Bosal said.

“A proposal to phase out the SRO regime and replace it with the tariff structure of the next policy implementation period was also in the works,” he said. The government granted protection to these assemblers under the 2006 regulatory decrees.

According to PAC members, these companies have been operating at half capacity for the past few years, artificially creating supply and demand problems. In 2018, assemblers produced just 273,279 vehicles, which in the previous fiscal year jumped to 322,754 units, Bosal said. However, a representative of an auto assembler said that this year sales will remain in the range of 125,000 to 150,000 units due to import restrictions and rising prices.

“If companies don’t start to behave, PAC will recommend opening up imports,” Khan said.

Members also grilled car assemblers and government departments for collecting advances of billions of rupees for undelivered goods. At the end of last financial year, Indus Motors had taken 112 billion rupees in advances, advances from Honda Atlas stood at 23 billion rupees and Pak Suzuki Motors at 41.7 billion rupees, according to Secretary Industries.

A total of 217 billion rupees in advances stood against undelivered vehicles up to June this year, according to Secretary Industries.

Published in The Express Tribune, October 19e2022.

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