Local automakers and the Government of Pakistan are in talks to discourage the practice of charging premium or ‘ON money’ by car dealers. They also want to promote consumer-friendly auto policies in car booking and dealership practices. In this regard, a proposal was made to restrict resale of new cars within the first six months by imposing a Transfer Tax of Rs. 100,000-200,000.
Currently, a small amount of Transfer Fee is charged by provincial Excise and Taxation Departments across the country and there is no bar on the resale of new cars which gives rise to profiteering in the name of early delivery. Due to this reason, investors and dealers are alleged of charging premium or ‘ON money’ on the sale of new cars. In Pakistan, there is a shortage of demand and supply, and some car dealers overcharge customers on the purchase of new vehicles for early delivery.
The matter of restriction on resale of new cars was discussed at length during a meeting between the Ministry of Industries and Production (MoIP) and Original Equipment Manufacturers (OEM), as reported by Business Recorder. According to the report, the meeting was attended by Prime Minister’s Advisor on Commerce, Textile, Industries and Production and Investment, Abdul Razak Dawood, and representatives of the top three local automakers – Honda Atlas Cars, Toyota Indus Motor Company (IMC) and Pak Suzuki. Seniors officials of Engineering Development Board (EDM), a body within MoIP to regulate the auto industry, were also present.
During the meeting, the OEMs proposed the restriction on resale of new cars. Considering the proposal, the MoIP may approach the Council of Common Interest (CCI) to discuss reforms in the resale of new sales.
The automakers have reportedly conveyed their concerns regarding car sales and urged the government to withdraw 10% FED on 1700cc and above engine displacement vehicles. They have also asked for legal cover in case any car dealer is blacklisted for charging premium money.
The federal government had earlier devised a plan to end the illegal business of ‘ON money’ or car premium on the purchase of new cars. According to this plan, several car dealers demanding ‘ON money’ for early delivery of new cars will be blacklisted.
As per media reports, the decision was taken in a meeting chaired by Prime Minister’s Advisor on Commerce, Textile, Industry and Production and Investment, Abdul Razak Dawood. The officials of EDB were also present in this meeting.
The local carmakers were asked to provide written “testimonies” of assurance that they will act against their dealers who charge illegal money. ‘ON money’ is usually charged from new cars’ customers over and above the invoiced price. The customers are literally forced to buy new cars at exorbitant prices for early delivery. The new regulatory framework is expected to keep a check on this illegal business of some auto dealers.
In an earlier cabinet meeting on April 2, 2019, Prime Minister Imran Khan had formed a committee to ban this practice. The committee, comprising ministers for law and finance, was directed to regulate the purchase of new cars through various steps, including penalties on dealers and manufacturers.
LOCAL AUTOMAKERS SAY THEY’RE NOT INVOLVED
Although it is widely believed that carmakers support dealers in collecting ‘ON money’ from purchasers of new cars, they have time and again denied any involvement in it. Car dealers often maintain that due to the wide gap in demand and supply of some new cars, they are forced to charge premium money.
On March 20, 2019, the federal cabinet had directed to stop the collection of ‘ON money’ and called it exploitation of car buyers.
Meanwhile, the longstanding issue of illegal ‘ON money’ business is still persistent due to disagreement on mandate within the government bodies. Ministry of Industries had earlier reasoned that the Competition Commission of Pakistan should take strict action against local car assemblies as issues like cartelization are under its domain.
It is pertinent to mention that the previous PML-N government had introduced Auto Development Policy 2016-21 to create a more competitive auto market. The policy provides tax incentives to new car manufacturers entering the Pakistani auto industry.
Under the present policies, buyers of new cars cannot be charged over 50% of the total cost. The local auto assemblers are bound to deliver the new cars within two months after payment of the advance. The carmakers will pay 2% fine if the delivery is delayed.