Govt needs to act against undue concessions

January 22,2019

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LAHORE: This government has taken some bold decisions to remove the lacunas in rules that allow use of concessions for those who are officially barred to benefit from them, but it is still reluctant to act against other undue concessions.

The PML-N government during the last months of its tenure made it mandatory for used car importers to pay the duties in foreign exchange from their own foreign accounts or that of their blood relatives. The car importers exerted immense pressure and the order was withdrawn.

The PTI government has again imposed this condition, effectively ensuring that the facility to import used cars is genuinely availed by the expatriate Pakistanis only, and not commercial importers. The commercial importers used to import used cars on the copies of the passports of overseas Pakistanis and import used cars in bulk for sales in the open market.

This was principally against the stated official policy. Almost 30 percent of the car registrations are usually of used cars.

By linking the payment of government levies to the actual beneficiary from his/her foreign currency account, the government has ensured that commercial import of used cars stops. The importers are protesting again, but it seems the government has taken the decision after careful deliberation.

Another matter worth considering in this regard is the import of used auto parts. The import of these parts again is officially banned. But custom officials, with the nod of the government use their discretionary powers to allow these imports on nominal fine.

Another matter worth considering is the permission to allow import of auto parts on duties levied on the basis of weight. Engineering Development Board and even the present Commerce Ministry head are fully aware that the value-addition in engineering goods is extremely high for delicate technical components.

The duty should be imposed on the value of part or component. This would encourage localisation of many components. Yet another controversial decision is to disallow non-filers from booking new cars. It shows the extreme weakness of the state in nabbing tax evaders.

The supporters of this order failed to realise that whenever a non-filer books a car with any of the manufacturer, his credentials are documented. The Federal Board of Revenue (FBR) can then access that information from each buyer, because the non-filers also pay higher tax than filers.

It is a great opportunity to identify tax evaders who buy cars of up to Rs3 million. The FBR is duty bound to confront these non-filers instead of forcing them to park their illegal income in real estate or stock market, where practically no questions are asked. Those evaders may even transfer the illegal money through hundi that is still in vogue in Pakistan. At least the government should not devise policies that hide the inefficiencies of the FBR. The trace of money is there, and FBR should seek justification from the buyer.

The non-filers condition has impacted new car production in Pakistan, as vendors claim that the orders for new components from the car manufacturers have declined by 20-30 percent. The government should not issue any order that has adverse impact on local car production.

Auto vendors are also concerned about the impact of new entrant policy on their orders. Most of them favour the new entrant policy that will bring in fresh competition and new variety in Pakistan’s car market.

However, they are concerned that at a time when the new orders are drying out due to the non-filers policy, there will be a cut in orders for auto parts from existing players if the three well known global brands succeed in capturing only 20 percent of their existing share.

The vendors need some facilitation in this regard. The government has allowed new entrants to import Completely Knocked Down (CKD) units at 10 percent duty against 30 percent paid by existing players (CKD consists of parts not produced in Pakistan).

The auto parts that are produced in Pakistan can be imported by existing players at 45 percent, while new entrants can import the parts at 20 percent duty. The concession is for five years after which they would be charged normal duty.

The auto vendors would certainly not get orders from the new entrants for five years. However, if the government reduced the duty on raw materials and components used by auto vendor to five and 10 percent, the new entrants would be able to get these parts at less than global rates. The local auto industry would flourish as well as the vendors.


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