KARACHI: The government is considering reducing 35 per cent import duty on auto parts in the federal budget 2006-07 in a move believed to check $1 billion worth of products’ smuggling, officials and traders said.
They said the budget-makers had received a proposal from importers in light of Central Board of Revenue’s (CBR) report, which argued in favour of a cut in import duty and the suggestions were expected to be incorporated in the budget document.
“The proposal from the traders cites the data compiled by the CBR, which suggests that smuggling of auto parts has crossed $1 billion mark during last two years,” said a source close to budget authorities.
“The CBR itself a few months ago took up the matter with the ministry of commerce and suggested removal of a ban on import of used auto parts to check smuggling but the move didn’t materialise.”
However, he said, in the budget for 2006-07 the government was more concerned over the issue as it sought proposals from both traders and the CBR on auto parts’ import, and the issue was likely to end up with a reduction in import duty.
“It is too early to suggest the size of duty reduction but it seems it will be cut to below 30 per cent as the importers plead for a maximum 20 per cent duty,” said the source.
The smuggling of auto parts started after the government in June 2004 imposed 35 per cent duty on its import, which was not more than 25 per cent varying from 15 per cent to 25 per cent during 2003-04.
The CBR in 2005 moved to curb smuggling through revised duty structure after it reported that 13 anti-government agencies had almost failed to check illegal trade through land, sea and air routes.
“The CBR in fact suggested import of used auto parts but that was seriously opposed by the federal ministry of industries and production and the EDB (Engineering Development Board),” said the source.
He said both the ministry and the board were of the view that import of used auto parts would badly hit local vendors’ industry and allow traders to manipulate prices of the products.
“Regular importers also oppose the import of used auto parts,” he added. “They believe it will negatively affect auto retail markets and encourage low-quality product sales.”
Currently, in the local auto spare parts’ market, Chinese and Indian products have made their place and dealers say the imports from neighbouring countries have almost surpassed Japanese products.
There are seven major auto spare parts’ markets in the city with over 4,500 shops.
“Import of used auto parts could encourage illegal business, mainly in retail market and cause damage ultimately to consumers,” said Sheikh Arman, Chairman Pakistan Automobile Spare Parts Importers and Dealers Association (PASPIDA).
He said the local market in past had witnessed some importers bringing in used auto parts at cheaper rates and reselling them at the rate of new products through enhanced appearance and face value.
“The importers strongly oppose the proposal of used auto parts’ import,” he said. “But at the same time, we suggest the government to revise duty structure on auto parts’ import, which will check smuggling and ultimately contribute revenue to the exchequer.”