Used cars import: ECC to consider raising depreciation rate today
<span class="bbcode-b"> MUSHTAQ GHUMMAN </span> ISLAMABAD (February 01, 2011) : The Economic Co-ordination Committee (ECC) of the Cabinet which is scheduled to meet on Tuesday, will consider increasing the rate of depreciation in assessable value from the existing level of 1 percent to 2 percent per month on import of used cars, sources in the Ministry of Industries and Production told <span class="bbcode-i">Business Recorder</span>.
A day before the ECC meeting, Pak Suzuki increased the prices of all models by up to Rs 15,000, which implies that the local manufacturers have decided not to reduce prices on the request of the federal government, sources said. Only Toyota company has reduced the prices of its different models on the request of the government.
"If the ECC approves this proposal, this may be considered as one of the major attacks on local assemblers by the incumbent government," commented a stakeholder. Official summary copy, obtained from the MoI&P, shows that ECC in its meeting on November 4, 2010 had taken the decision to increase the age limit for import of cars under baggage and gift schemes from three to five years.
Following the ECC decision and subsequent direction in its meeting on December 7, 2010, a notification allowing import of cars up to five years old under baggage and gift schemes was issued. Later, in pursuance to the directions of the Prime Minister Secretariat to put on hold the decision to increase age of cars till reconsideration of the issue, another notification withdrawing facility of import of cars not older than five years was issued.
According to the summary, to further review the situation as per the directive, another meeting of the committee, constituted by the ECC, was held in the Ministry of Commerce on December 31, 2010. On the basis of the inputs received from the Ministry of Industries and Production and FBR on the draft summary prepared by MoI&P consensus emerged on the following points: (a) increase in the rate of depreciation in assessable value from the existing level of 1 percent to 2 percent per month up to a maximum of 50 percent on the import of cars; and (b) commercial import of buses with the capacity of 40 or more seats up to three years old may be allowed on the condition that such buses should be certified by some reputable pre-shipment inspection company to the effect that they have a road life of at least 5 years.
However, consensus was not achieved on the following two issues: (i) increase in the age limit of cars, trucks etc, from 3 to 5 years as Ministry of Commerce proposed that the age limit for import of cars, trucks, buses, vans and tractors may be increased from 3 to 5 years under the Baggage and Gift Schemes. Ministry of Industries & Production supported the proposal.
However, FBR changed its stance after withdrawal of the notification of allowing cars of five years old; (ii) age relaxation will not have negative impact on the local industry. When age limit of cars under the Baggage Schemes was relaxed from 3 to 5 years and the condition of registration was dispensed with in the year 2005-06, the number of used cars imported under these schemes was only 38,499 units against the local production of 170,487 units.
There was no negative impact on production volume which was over 170,000 units during that year. Similarly, negligible quantities was imported in case of buses, vans and tractors. Over period of 3 years from 2007-08 to 2009-10 only 264 trucks, 1470 buses and vans and 2 tractors were imported. Ministry of Industries & Production also had the same views.
Ministry of Commerce also proposed that new entrants of auto sector may be allowed to import CKD kits for the first three years as follows: (i) components, parts and CKD kits not manufactured locally at 50percent of the existing rate of 32.5 percent ad val customs duty and; (ii) components, parts and CKD kits manufactured locally at 50 percent of the prevailing rate of 50 percent ad val customs duty.
Ministry of Industries & Production, however, proposed that new entrants may be allowed to import 100 percent CKD (whether or not locally manufactured) at the reduced rate of 5 percent for the first year, 10 percent for the second, 20 percent for the third. FBR maintained that the concession proposed by the Ministry of Industries & Production on CKD kits was too liberal. However, FBR supported the proposal of Ministry of Commerce.
Commercial cars importers are jubilant over this proposal, saying that people be able to buy cheap reconditioned imported cars at reasonable rates. "We will provide people used imported cars in good condition at very reasonable prices," said H M Shehzad, a Karachi-based top importer of cars.
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