It has been reported that the government is considering to rake up the fixed duties on used imported cars. The BR report claims that the “well-informed sources” in Federal Bureau of Revenue have revealed the news of potential substantial tax increase to the paper. The report says that the duties and taxes rates are fixed in US dollars under SRO 577(I)/2005. Since the fixed duties are kind of bottled-up, they are causing the government a loss of tax revenue. Also, subsidizing the import of used cars is hurting the existing local manufacturers as well. The duty structure in SRO 577(I)/2005 was as follows:
There were a few amendments to the structure, and the last one was made on November 30, 2015. The last change only targeted car with engines above 1000cc. Smaller engine capacity cars (800cc and 1000cc) were left alone and in return had very low tax rates. The report says that locally produced small car Suzuki Mehran has the market share of 78pc compared to small imported car with 22pc market share. In numbers, its 35,260 units of Mehran compared to 9,860 units of imported kei cars. But the interesting point to be noted here is that a locally produced car such as Suzuki Mehran consumes around Rs310,000 worth of locally made auto parts per vehicle whereas vehicles with engine capacity between 801cc-1000cc (like Suzuki Cultus and WagonR) are made up of local auto parts that are approximately worth Rs375,000 per vehicle. The FBR sources are saying that the government argues that if you roughly calculate the tax that the government lost on each unit of those imported units, (Rs310000 multiplied by 9,860), it reaches to Rs3bn per fiscal year. And in a similar way, the tax loss on 801cc-1000cc cars reach to staggering Rs4bn (10,432 units were imported of same engine capacity). The government is eyeing the loss and are not happy about it.
The report claims that the sources are saying that the new proposed duty for Asian brand cars under 800cc is $7,443 per unit compared to the previous duty of $3575 per unit. The new proposed duty was calculated as an average of the correct duty of Mira, Alto, Move and Wagon R models. Similarly, the proposed duty for Asian brand 801cc to 1000cc cars is $9,308 compared to $5000 per unit. And the proposed duty is the average of correct duties on Toyota Vitz and Passo cars.
Interestingly, APMDA (All Pakistan Motor Dealers Association) has asked the government to allow the commercial import of used cars that are up to 5 years old, compared to current three-year rule for the upcoming 2016-27 budget recommendations. APMDA Chairman H.M. Shahzad says that the government needs to take this step in order to break the monopoly of existing automakers and also to increase the choices of vehicles for the Pakistani auto consumers. However, only registered APMDA members will be issued commercial import license for the sake of transparency.
The proposed taxes are almost double to what the importers are paying right now. These small cars in the under 800cc to 1000cc engines category was most popular only because they were relatively cheaper and were providing far better options compared to locally assembled cars of the same class. And that is why they were so in demand. And now the government after the same thing. Let’s how the things roll out in the end, but until then, maybe it’s best to get yourself a used kei car before the new budget.