Last year in October, the Government of Pakistan issued two new SROs, which were SRO 1035(1)/2017 and SRO 1067(1)/2017. These SROs created chaos and confusion in the local automotive market.
The Government of Pakistan issued SRO 1035(1)/2017 and increased the Regulatory Duty on 731 imported items including automobiles, steel and groceries items, which created a great deal of buzz in the local market and panicked the local consumers. At that time, it was reported that the government had issued this SRO to give more leverage to local producers and to stop the devaluation of the rupee. Due to the government’s policy, the prices of imported items surged, which also included the prices of new imported automobiles. Audi, Mercedes, BMW, and Porsche – all jacked up their prices. Let me give you a few examples here, Audi soared the price of its Q7 from PKR16.5mn to PKR19.5mn and of Q5 from PKR13.56mn to PKR15.2mn etc.
Reaction from the automobile industry and court’s verdict against SRO 1035(1)/2017:
After the issuance of SRO, new car importers such as BMW, Audi, and Porsche Pakistan filed the case in Sindh and Lahore High Courts and urged the respected courts to declare this SRO null and void, as it was against the spirit of auto policy 2016-21 and harming their businesses. And after 4 months on 7th Feb 2018, the Sindh High Court declared the SRO ultra vires, which means the authority who issued the SRO didn’t have the power to issue such SROs. In layman terms, the SRO 1035(1)/2017 was declared null and void, and the RD on imported items, which increased from 60% to 80%, reverted to as it was before October 2017.
However, the decision was final but was made to get in effect after 30 days; giving the government the opportunity to appeal against the verdict. In simple terms, it was a suspended judgment.
We also reached out to the new car importers to know their stance on the matter.
The officials of Audi Pakistan lauded the decision taken by Sindh High Court. Furthermore, the officials of Porsche Pakistan also appreciated the verdict announced by the court. He said to us that they were waiting for their Judgement on the same issue from Lahore High Court. Additionally, one of the officials also asserted that as the decision was a suspended judgement, the car importers would sell the cars in current prices for the next thirty days, but would change back to what they were before October last year—meaning good news for local consumers as they were the one suffering the most, he expressed.
Moreover, he told us that the people who paid extra RD after SRO would get a refund.
Outcomes of the verdict:
- If the government doesn’t appeal against SHC’s verdict within 30 days of the issued verdict, the order will come into effect with its full power
- People who paid extra RD would get a refund
- The prices of the new imported cars (Audi and Porsche etc.) would decrease and change back to what they were before October 2017 after the verdict would in to effect
Now coming to the main part of this article which is SRO 1067(1)/2017, the commerce ministry has declared SRO 1067 invalid and has issued new SRO 261(1)/2018. Written below is a complete timeline of SRO 1067: When it was issued, the reaction from the local automobile industry and finally its nullification.
Same as SRO 1035; the SRO 1067 was also issued in October 2017. After the issuance of SRO, it was presumed by many local used car importers that government banned the import of used car in the country. But, government rebutted the argument and asserted that its false propaganda, the SRO was issued to curb the trade deficit and to stop the misuse of import car schemes like baggage, gift, and transfer of residence, which were made to give a sigh of relief to overseas Pakistanis and were not introduced to serve commercial purposes, government claimed. However, there was no denying in the fact that due to government’s sudden change in import policy, the import of cars into the country became difficult and their supply was also disrupted.
- Personal Baggage Scheme
- Gift Scheme
- Transfer of Residence
Personal Baggage Scheme and Transfer of Residence: Under the Baggage and Transfer of Residence schemes, non-resident Pakistanis (Pakistani Nationals) can bring cars into the country. It is pertinent to mention here that the people who are importing cars think that vehicles coming through these schemes are duty-free. However, this is not the case; one has to pay the customs duty.
Gift Scheme: Under this scheme, non-resident Pakistani can gift a car to anyone living in Pakistan.
Here are few conditions, if one uses these schemes:
- Once in two years
- Not more than three years old model (Year of manufacturing)
Under the SRO a new import policy was introduced which is as follows:
“The duty and taxes of all vehicles that are imported under transfer of residence, personal baggage or under gift scheme will come from abroad; either arranged by Pakistani nationals or local recipient showing the conversion of foreign remittance to local currency through bank encashment certificate.”
In layman terms, the amount of duty on imported cars shall also come from abroad, and its money trail should be provided as well.
Reaction from the industry:
Due to the ongoing tussle between the government and local car importers, the local importers decided to not clear their vehicles from the port, which created gridlock at the port. As reported by many local media outlets, the importers demanded that until and unless the government doesn’t withdraw its new policy they would not be taking their cars from the port. Due to this, around 10,000 vehicles were stuck at the port. And this situation hiked the premium on locally manufactured cars which reached an all-time high.
After all this, the Commerce Ministry proposed to the Economic Coordination Committee (ECC) to clear those vehicles, where the bill of landing was issued on or before the 9th of January 2018, following the old duty structure.
Finance, Revenue and Economic Affairs Adviser, Dr. Miftah Ismail suggested on releasing the shipments, so the people who imported before the SRO issuance wouldn’t have to face difficulties. Moreover, he also suggested making it effective for vehicles arriving after February 28, 2018, where the importers would have to pay their duties at the higher exchange rate.
After all the commotion, on 21-2-2018 the government as reported by many local media outlets declared SRO 1067(1)/2017 invalid and directed FBR to clear the 10,000 stranded cars, which were stuck for the last 4 months at Karachi port, under the old import policy. As mentioned above due to the spat between government and importers over new import policy the premium on cars also reached sky high, but now with the change in policy, it is safe to assume that the premium on cars will be decreased.
Update (Used car import policy (SRO 1067(1)/2017)):
And now the commerce ministry has issued a new SRO 261(1)/2018 dated 23rd Feb 2018 which states as follow:
“In exercise of the powers conferred by the sub-section (1) of section3 of the imports and Exports (Control) Act, 1950 (XXXXIX of 1950), the Federal Government is pleased to direct that in the Import Policy Order, 2016, in Appendix-E, in paragraph 3, in sub-paragraph (5), for the expression “All vehicles in new/used condition”, the expression “In case of cars with the engine capacity of 1800cc and above and 4×4 vehicles in new condition” shall be substituted.
In our understanding, this means that the authority has officially introduced previous car import policy by issuing this new SRO 261(1)/2018.
We reached out to an industry expert, Arghan Tahir from Jumbo International Clearing Agency, in this regard and he confirmed that indeed the old used car import policy has been reinstated.
Possible outcomes of the nullification of SRO 1067:
- New/used cars will now be imported into the country under old import policy. People don’t have to arrange the duty of the vehicles from abroad– the condition which made the import of cars difficult. In simple terms, the hurdle for importing cars into the country has been removed.
- Premium on cars would decrease as it was increased drastically after change in import policy and due to thousands of cars being stuck at port
- Thousands of marooned cars at Karachi port will now be cleared under old import policy
- One important thing to mention here is that despite the issuance of SRO 261, new vehicles having engine capacity 1800cc or above and 4×4 vehicles will still come into the country or would be imported under SRO 1067.
It would be wise to mention here that the government never halted the import of cars into the country as many gave the notion, the authority only changed the import policy and strengthened the import schemes such as gift, baggage and transfer of residence to stop their misuse. Nonetheless, after the SRO 261(1)/2018, the import of cars through previous means have been resumed.