Prior to the budget announcements, the industry had prepared and sent the dossier of recommendations to the government. These included charging duties on imported, used vehicles based on the current global prices of those vehicles and not at older rates. This, they suggested, would enable greater revenues for the Government Of Pakistan (GOP) and level the playing field for local producers.
Another insistence was the abolition of the 3.5% withholding tax on automobile dealerships to incentivse retail sales, as well as greater curbs on the misuse of imported, used three-year-old vehicles. When the budget was announced, the GOP set aside all such recommendations. Under the new budgetary proposals, vehicles will be subject to advance tax impacts raging between Rs 10,000 (for 800cc vehicles) and Rs 250,000 (for 3000cc cars and above).
As a balancing act, 15% Federal Exchange Duty was removed on locally manufactured vehicles of 1800cc and above, increasing the stock prices of certain local, high-end automakers. However, this move is largely seen to be vested and designed to relieve the high-end market for cars when such incentives could have been directed to 800cc to 1000cc cars. The noise made over the import of used cars eating into local production and market shares did not make any impression on the GOP. An analysis of such imports into Pakistan, from July 2013 to February 2014, indicates that the import of cars decreased to 14,900 units from 38,000 units for the same period the year before – a result of the GOP’s agreement to drop depreciation allowances from 36 to 24%, and limiting imports to three-years-old cars. Concurrently, the local industry grew by 3.5%, settling any debates over demands to curb imports.
Unexpectedly, no announcement was made of the much-delayed Automotive Industry Development Policy (AIDP); one can only hope for better days ahead.
By Mazhar M Chinoy