Low duty on used cars gives leverage to elite, affluent

LAHORE: Pakistan is an elitist economy as even in used cars the small low medium-sized enjoy up to 36 percent duty relief, while luxury cars above 1800cc could be imported at concessionary duty from 60-120 percent.

Eminent economist Dr Ishrat Hussain about two decades back had said Pakistan is an elitist economy. His research was the first realisation on reducing the inequality in the country. Still most of the policies introduced in the last 20 years have further strengthened the elite. Even the policies that are announced in the name of relatively poorer segments of society provide more opportunities to the rich.

Subsidies are generally doled out that benefit both the rich and poor. Take the instance of subsidy on wheat flour that benefits all segments of the society. There are many such instances where the rich and the affluent middle class comprising technocrats have more influence over policy makers than the poorer segments of the society.  Import of used cars is one such glaring example.

The concept of the policy meant to allow low-end users one percent duty concession per month. The value on which the duty was to be levied was the Freight on Board price of the car in that country. This originally meant that a three year old car imported in the country would get 36 percent duty concession on the price of that model prevailing in the international market at the time of clearance. This price could be easily verified through the internet.

However, the middle class and the rich influenced the evaluators to fix lower values for duty on used cars under an SRO. This meant that values for duty would remain unchanged until the SRO is amended. Then for a brief period, the government allowed even five years old cars that increased the duty concession to 60 percent. However, after protest from the auto parts makers and the auto industry, the government reduced the importable age to three years. This hurt both the affluent middle class and the rich elite.

This time the rich came up with a novel idea of special concession for the hybrid cars. The government slashed duty on the import of hybrid cars by 50 percent and increased the importable life of the hybrid car to five years. Now if the original duty was Rs100 it has been reduced through SRO to Rs50. The concessional duty on a five year old hybrid car was thus further reduced by 60 percent. This means a hybrid car importer would practically pay only 20 percent duties on the import of a five-year old hybrid car.

They are saving millions in duty per car on this special concession that is not allowed to the low end cars. There is no logic in continuing this concessions as the oil prices are plummeting.

Pakistan has more liberal import policy for used cars when compared with India and Thailand that impose high tariff plus non-tariff barriers resulting in insignificant imports compared with Pakistan where used car imports are high.

A study of the import regime for the used cars reveals that a used car can be imported in Pakistan as personal baggage for Pakistanis with six months stay abroad. Overseas Pakistanis with a stay abroad of 700 days could send the used car as gift to a blood relative.

Indian import laws also allow import of used cars up to three years old. However, there is a restriction that the imported used car would have to be registered in the name of the importer for at least one year. There is no gift scheme in this regard. It is mandatory in India that the used imported vehicle is right hand drive with speedometer in kilometres per hour. The import duty on two years old vehicle is 108 percent. The used car importer in India has to submit a pre-shipment certificate that the imported vehicle conforms to the Indian Motor Vehicle Act standards.

In Thailand foreigners living in the country for at least one year are allowed to import a used car. The car is registered in the name of the importer for at least one year.  For Thai residents living abroad desiring to bring a car home, it is mandatory to have the vehicle registered in their name for at least one and a half year, and the owner must have had a driving license in the country where the car was registered. The import duty on used cars in Thailand ranges from 167 percent to 197 percent.