The federal government is suffering losses worth billions after it had revived restrictions on the used cars import, Pakistan-Japan Business Council (PJBC) President Rana Abid Hussain said in a meeting in Nagoya on Tuesday.
Back in January, the government had introduced SRO 52(1) 2019 in which the Ministry of Commerce revived the condition on import of used cars. As per this restriction, the payment of duties and taxes must only be paid in foreign exchange. These payments are bound to be directly remitted from abroad by the person importing the vehicle.
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There is a disagreement between PJBC and Pakistan Automotive Manufacturers Association (PAMA) on SRO 52(1) 2019. The PJBC chief has demanded of the government to drop foreign exchange rule and let import business flourish. On the other hand, PAMA DG Abdul Waheed Khan had earlier backed the SRO 51(1) 2019, reasoning that local automakers should be encouraged to expand and investment in Pakistan and that there should be no fear of competition due to used car imports.
DROP IN USED CAR IMPORTS
Last month, we had reported that the used car imports have seen a massive dip by 74% in the month of February 2019, becoming the lowest in the past five years.
According to the statistics revealed by the Pakistan Bureau of Statistics (PBS), the trend of importing cars in the country has dropped drastically. In comparison to January 2019, when the import was around $37 million, it has dipped to $9.5 million which is a considerable drop of 74% within one month period.
The import bill consists of completely built-up units usually known as CBUs which includes more than 90% of used cars from Japan. The decline in imports came right after the issuance of SRO 52(1) 2019.
The import of vehicles has also seen a 64% year-on-year drop during the month of February 2019 as compared to the same month in 2018. While talking about the latest policy on the import of cars, the Chairman of All Pakistan Motor Dealers Association, H.M.Shehzad said that all the suppliers from Japan have suspended their shipments to Pakistan right after the implementation of the new policy.
WHAT IS SRO 52(1) 2019?
In Pakistan, used cars are imported from Japan mostly in the 660-1,000cc category as they have a better fuel economy. The import of the Japanese Domestic Market (JDM) used vehicles is allowed under the following three schemes:
- Transfer of Residence (TR)
- Baggage
- Gift
Irrespective of the scheme, the import duty remains the same, which increases with the engine capacity of the vehicle. People can only import cars for personal use; however, traders later sell these cars in the local market.
Moreover, the duties and taxes are supposed to be paid in foreign exchange which could only be arranged by two types of people – Pakistani nationals or local recipients. The foreign exchange must be backed up by bank encashment certificate with proof of foreign remittance conversion to local currency. This particular condition for used car imports was initially implemented back in November 2017 which was soon lifted in February 2018 but revived again this year.
The condition of foreign currency was first imposed through Auto Development Policy 2016-2021. It was reasoned that used car imports are not suitable for the country’s dwindling foreign exchange reserves as some traders use hundi/hawala channels to transfer money.
Through the SRO, the remittances required for the payment of duties and taxes must be strictly drawn from the account of the Pakistani national who is sending the vehicle to Pakistan. In case of a non-existent or non-operational bank account, remittances can be received from the account of a close family member. The decision came from the government in order to put a full-stop to the misuse of the import policy by the traders which result in the loss of foreign exchange reserves.
Meanwhile, the used car importers have urged the government to commercialize the import of second-hand cars, in order to generate revenue and provide more choices to potential car buyers.
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