Cut in car makers' taxes: Finance, Commerce and FBR oppose move
MUSHTAQ GHUMMAN
ISLAMABAD (December 02 2008): The Ministries of Finance and Commerce and the Federal Board of Revenue (FBR) have said 'no' to the proposals of Industries Ministry to 10 percent reduction move in taxes for car manufacturers, sources told Business Recorder here on Monday.
The Industries Ministry has proposed complete abolition of 5 percent federal excise duty (FED) and 5 percent reduction in withholding tax, besides imposition of complete ban on import of all vehicles except cars under transfer of baggage scheme announced by Commerce Ministry, sources said.
Though the sponsoring ministry has received negative comments from Finance, Commerce ministries and FBR on its proposal, the issue will be placed before the Economic Co-ordination Committee (ECC) of the Cabinet in its meeting to be held on Tuesday.
Sources said that Industries Ministry had proposed to Commerce Ministry that it was not against import of cars by overseas Pakistanis but at the same time ban should be imposed on import of other vehicles under transfer of baggage scheme.
The office-bearers of Pakistan Car Manufacturers Association (Pama) recently met officials of Industries Ministry, Engineering Development Bank (EDB) and Ministry of Investment to apprise them of the current situation of the industry. The delegation was of the view that their production had come to a halt with local car sales plunging by 51 percent in the Q1 of financial year 2008-09.
According to recent statistics, the number of cars sold in September declined by 29 percent to 7,889 units, against 11,072 units sold during the same month of last year. Sources said that Pama had been assured that Industries Ministry would submit a summary to ECC for reduction in taxes by 10 percent, with the consent of Federal Board of Revenue (FBR).
Finance Ministry, in its comments gave details of the country's financial position before rejecting the proposal of the Industries Ministry, sources said. Finance Ministry had said that since the country's financial position was not sound and every sector was contributing to the national economy at this juncture, there was no justification for any relief in taxes to any sector.
They said that FBR in its comments said that withholding tax and FED had been imposed in consultation with car manufacturers. Hence, there was no justification to withdraw these taxes.
On cumulative basis, during 1Q FY 2009 total car sales remained 51 percent lower, at 19,066 units, as compared to 39,297 units sold during the same period of last year. During the 1Q FY 2008, almost all manufacturers registered decline in sales. Among major players, a massive drop was witnessed in Indus Motors sales units with 64 percent decline at 4,659 units, followed by Pak Suzuki Motors which registered 48 percent decline in sales over the same period of FY 2007.
Officials of a commenting ministry said that when the proposal had been opposed by almost all public sector stakeholders, there was no justification for its submission to the ECC of the Cabinet. "I do not see any wisdom in submission of this summary when three major stakeholders ie Finance, Commerce and FBR disapproved the recommendations," one official commented.
Copyright Business Recorder, 2008