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owering duties on used car imports into Pakistan will have far-reaching implications for the domestic car industry, with both positive and negative effects, depending on perspective and stakeholder.
Imported used cars, especially Japanese brand, are often of higher quality, better equipped and cheaper than locally assembled ones. Consumers may shift to these, reducing sales for local assemblers like Suzuki, Toyota and Honda. After duty rationalisation the price gap will widen further.
Used Japanese cars
There is a common misconception about used Japanese car. Japanese consumers don’t abandon cars because they are inefficient or polluting. In fact, their used cars are often in very good condition.
Japan has a rigorous (and expensive) vehicle inspection system. A car must be inspected once it is 3 years old. The older the car, the more expensive it is to maintain and pass the inspection. Maintaining an old car can become more expensive than buying a new one, partly on account of high-cost repairs and insurance. Even minor repairs or cosmetic damage can make older cars financially unviable to maintain.
Another reason is the rapid technological upgrade. Japanese consumers are tech-savvy and tend to prefer the latest models with new features offering greater safety, connectivity and fuel economy. Even slightly older models are obsolete in their eyes.
In Japan, cars depreciate rapidly, even as they are mechanically sound. There’s little incentive to hold on to older vehicles when financing options for new cars are easy. To reduce urban congestion and emissions, Japanese urban policies often discourage long-term car ownership.
Local industry
If assemblers and parts manufacturers face uncertain or shrinking demand due to cheap used imports, they may scale back investment in local production, innovation or localisation efforts. Pakistan has a tiered auto parts vendor industry supplying parts to assemblers. A downturn in local car production will hurt auto parts manufacturers, leading to job losses and reduced industrial activity.
In the long term, the import of used cars (a consumption activity) replacing local manufacturing (a productive activity) may contribute to deindustrialisation — harming employment, technology transfer and skill development.
Pros and cons
Lower duties on used cars will increase the variety and affordability of better-quality cars for middle-income buyers, especially hybrids and small cars previously not available in the country. For decades, Pakistan’s local car assemblers have been accused of offering outdated models, poor quality and high prices. Competition from used imports could force them to improve quality, localisation and pricing.
If duties are lowered and volume increases significantly, government’s revenue from car imports will remain stable or rise. Many imported used cars are hybrids or fuel-efficient, and may include modern safety features. This could improve road safety and reduce fuel import bills over time.
Unlike many local options, most used Japanese cars are Euro 4 or Euro 5 compliant, use hybrid technology and are well-maintained due to Japan’s culture and regulatory framework. Pakistan’s locally assembled cars often lack hybrid versions. Japanese used imports like the Toyota Prius, Vitz Hybrid or Aqua offer significantly better fuel efficiency and lower emissions than many locally assembled petrol-only models.
For decades, Pakistan’s local car assemblers have been accused of offering outdated models, poor quality and high prices. Competition from used imports could force them to improve quality, localisation and pricing.
Pakistan lags behind in adopting modern emission norms (it moved to Euro 5 fuels in 2020 but enforcement has been weak). Even a used 7-year-old Japanese hybrid is likely cleaner than a new local variant.
Japanese cars are abandoned not because they are unclean, but because it is costlier to keep them under Japanese regulations. Japan has a system that recycles vehicles early, even if they are fairly efficient. For importing countries like Pakistan, these vehicles represent an upgrade in terms of technology, fuel efficiency and emissions.
Cheap used cars will bring relief for consumers in the short run, but may undermine long-term industrial development goals. One solution is to allow lower duties only on models not locally assembled, or on hybrids and EVs, to protect local assemblers while pushing for cleaner technology.
Government could link duty reduction with policies to force local assemblers to increase localisation, improve technology and lower costs.
Lowering duties on used cars will hurt domestic car assemblers and vendors, possibly stalling industrial growth and localisation. However, it will benefit consumers, possibly discipline local producers and may improve the overall quality and diversity of vehicles in the market. The policy decision hinges on whether Pakistan prioritises short-term consumer welfare or long-term industrial self-reliance.
The recent reduction of duties on used car has been due to the IMF push. The IMF typically pushes for the removal of ‘distortive’ taxes and tariffs, including high duties on imports, as part of a broader agenda of liberalisation and revenue efficiency. Reduction in duties on used small cars will helps low- and middle-income people by making small, fuel-efficient vehicles slightly more affordable.
Luxury car duties
Simultaneous duty reduction on luxury cars disproportionately benefits the wealthy. A Rs 10 million saving for a luxury car buyer is not just a revenue loss, it’s also a massive regressive benefit in a country already having extreme inequality. A saving of Rs 10 million on a single vehicle is an enormous tax concession — enough to buy three or more small cars. It benefits a tiny elite group with high purchasing power and no pressing need for such relief.
Even after duty reductions, small cars remain unaffordable for most families due to stagnant wages, rising inflation and fuel/ maintenance costs. Unlike the rich, small car users rely on these vehicles for essential mobility — not luxury.
The dual reductions suggest a policy skewed toward elite capture — where influential business lobbies and the wealthy shape policy to their advantage. This undermines public trust, especially when the same government is preaching austerity and raising indirect taxes on essentials.
High-end vehicles are a low-hanging fruit for progressive taxation. Reducing duties on luxury imports during a fiscal crisis is economically and morally indefensible — especially when public services, development spending and subsidies for the poor are being cut.
There should be targeted relief for small cars (especially
The government could use revenue from luxury car imports to subsidise public transport or local car assembly for affordable vehicles.
The writer is a senior economic reporter at The News International.