KARACHI: The government is considering abolishing regulatory duty and scaling down Customs duty to 25 percent on various luxury goods, which include new and used cars and their components, in the next budget.
These recommendations were evolved in a study commissioned by Planning Commission of Pakistan and have been submitted to the Economic Coordination Committee for consideration.
The auto industry has opposed this proposal and said that any reduction in duty structure would be detrimental to the local manufacturers.
A spokesperson for the Indus Motor Company said that any move to abolish regulatory duty and reduce Customs duty would result in industry closures and job losses. The existing used-car policy is extremely relaxed and being abused by traders, he said. Any further relaxation would hit the local manufacturers, he said.
Instead, it is recommended that the decision of extending used car import age limit to five years should be reverted.
About new entrants, the spokesperson said the government should provide level-playing field to all players and should not distort the competitive landscape as it will gravely discourage long-term investment.
However, any reduction in or abolition of regulatory duty on vehicles of more than 1800 cc will not have any impact on the local industry as they are not being manufactured here locally, he added.
Furqan Punjani, an analyst at Topline Research, said any reduction in Customs duty would result in lower sales volume and hurt their gross margins.
At present, there are three parallel duty structures through which used and new vehicles are imported. There are different duties on Asian made vehicles, non-Asian made vehicles and then there is regulatory duty on non-Asian made vehicles.
The first two come under a ‘special regime’ introduced by Federal Board of Revenue (FBR) especially for import of used vehicles, while the third one comes under the ‘normal regime’.
On Asian made vehicles, duties are imposed in dollar terms instead of percentages, ranging from $4,400-$23,100 per car on different variants (600cc-1800cc) from which per month depreciation rate is deducted. Currently per month depreciation rate is one percent, while the maximum depreciation benefit is 60 percent.
While Customs duties on non-Asian made vehicles vary from $6,600-$23,100 per car on 600-1800cc variants. Though these are in absolute values, “if we convert these values to percentage the duty comes to 49 percent, assuming a three- year-old 1000cc used car with price ticker of $7100 (including $1,100 freight)” said Punjani.
Most of the used imported vehicles are imported from Asia and contribute approximately 80 percent to the total imports.
New vehicles are mostly imported under the ‘normal regime’ in which duties are levied on the value of car assessed by Customs officials. In this category, the Customs duties vary from 50 percent to 100 percent for 660cc-1800cc and above variants. Along with this, an additional 50 percent regulatory duty is also imposed on cars of 1801cc and above.
“If the government in the budget reduces the Customs duties on imported cars (new and old) and components to 25 percent and abolishes the regulatory duty, the imported cars will become cheaper,” said Punjani. The Customs duty would be cut to half to $1800 from $3,520.