Last year in October, Government of Pakistan issued two new SROs, which are SRO 1035(1)/2017 and SRO 1067(1)/2017. These SROs created chaos and confusion in the local automotive market.
In this article, I will discuss the effects of these SROs and what should be done to normalise the market.
According to my interpretation of SRO 1035(1)/2017, the regulatory import duty on new imported vehicles, having engine capacity above 1800cc, was revised from 60 percent to 80 percent, which pushed local new car importers; Porsche, BMW and Audi Pakistan to take the issue to courts. According to them and many other analysts, the government has not only increased the regulatory import duty on cars that have engine capacity above 1800cc but also for vehicles between 801 and 1500cc.
Audi and BMW Pakistan have argued that SRO 1035(1)/2017 is mala fide. Similarly, Porsche argued that the SRO is wholly invalid in both letter and spirit and is also harming and damaging the business. BMW and Audi Pakistan have filed a case in Sindh High Court while Porsche Pakistan in Lahore High Court. The decision on the case is still pending.
According to a spokesperson of Porsche Pakistan, if they win the case in the court, all the regulatory import duty which they would pay under new SRO shall be reimbursed to them.
Moving onwards, in my opinion, Government should engage with new car importers and settle the matter outside court. All the concerned parties should think of the local consumers who are facing problems due to this ongoing tussle and have to pay the extra money which the government has imposed in the form of duty. Government and new car importers should come to common terms and give relief to the consumers.
Now coming to the second SRO 1067(1)/2017, which created more buzz comparatively. According to the government, the reason to issue this SRO is to lessen the trade deficit of the country by limiting the import of used cars under baggage, gift and transfer of residence scheme. The schemes were made to give a sigh of relief to Pakistanis living abroad not for commercial purposes, the government asserted.
According to one of SRO’s condition:
“In case of import of vehicle under baggage, transfer of residence or gift schemes, the remittance for payment of duties and taxes should originate from the account of Pakistani national sending the vehicle from abroad.”
Last year Pakistanis imported 65,723 units of cars and minivans, which is 70 percent increase in import if we compare the import figure of 2017 and 2016. Moreover, imported SUVs and Pickups also saw 59 percent and 9 percent increase in 2017, which is also astonishing figure. It was also reported that due to excessive import local automobile industry saw a revenue loss of PKR 23bn last year.
After the SRO was issued, the used car importer harshly criticised the government and said that this policy of government would annihilate our businesses and thousands of people will lose their jobs. Moreover, import of used cars will shut down entirely in 2018. Additionally, they also threatened the government to take back the policy or face the country-wide strike. According to the importers, the government is generating a lot of revenue from the tax and other duty paid by the importers, so this will result in their loss as well.The chairman of APDMA HM Shahzad alleged government for siding with the local automakers and also said that halting the import of used car will not benefit the consumers.
To counter all these allegations on government, the commerce secretary Younus Dagha said that government was not only trying to stop the import of used cars but to shut it down completely. “We want to discourage unnecessary imports at this time to curtail the growing trade deficit.”
In my opinion, the step taken by the government is promising but its too early; the authority should do something to curb the scarcity of cars in the country. At the moment, car penetration stands at as low as 13 vehicles per 1000 persons, delivery timings are huge, and menace of the premium is also prevailing strongly. So, people have no choice but to import used cars and that is also the reason Pakistan is primarily a used car market.
Right after the government issued SRO, the local carmakers Pak Suzuki, Honda and IMC jacked up the prices of their vehicles. The reason they mentioned was the devaluation of money; however, the percentage at which they raise the prices are not justifiable at all. In my opinion, they want to take full advantage of the slowly diminishing used car import. They are just exploiting the consumers under the disguise of the devaluation of Rupee.
Moreover, not only the prices but the premium on locally manufactured vehicles have surged, and now they stand at all-time high.
The only people who are suffering in all this commotion are consumers, not anyone else. The government should pressurise the local car manufacturers to timely increase their production and availability of cars.
However, pressuring the locally used car importers to their limits is not good policy at all. New automakers are also coming in the country, but it is still too soon for them to start producing vehicles and diversify the market. The government shall encourage more foreign automakers to come to Pakistan.
It is to be noted here that FBR exempted car imports between December 4, 2017, to January 9, 2018—meaning the stranded 7,000 cars at the port will be given clearance. FBR and people involved in used car import should devise a strategy such as new customs duty, regulatory import duty and new rules and regulations for importing a vehicle in the country, which is acceptable for both, keeping the concerns of consumers in view.