FBR relaxes duty payment condition on car imports

KARACHI: The Federal Board of Revenue (FBR) relaxed a duty payment condition for car imports under gift, personal baggage and transfer of residence schemes, officials said on Thursday.

The officials said the FBR exempted car imports between December 4, 2017 to January 9, 2018 from a condition to show proof that the remittance for payment of duties and taxes originate from the bank account of Pakistani national sending the vehicle from abroad.

“The relaxation may help importers to get around 4,000 cars cleared out of total 6,000 currently stuck at the ports,” a source in Pakistan Customs said.

Custom’s department had advised the tax authorities to temporarily relax the condition of involvement of bank accounts of Pakistani national or his family member to clear the backlog of imported cars at the ports.

The board was proposed to allow the imports of cars standing at port on production of bank encashment certificate only.

Last year, the commerce ministry said all duties and taxes on imported vehicles in new or used conditions, either under personal baggage, gift scheme or transfer of residence schemes, would be paid out of foreign exchange arranged by Pakistani nationals or local recipient supported by bank encashment certificate showing conversion of local currency.

The remittance should either be received in local bank account of Pakistani national sending the vehicle from abroad or, in case his account is non-existent/inoperative the remittance should be received in the account of overseas Pakistani’s family member as defined in the import policy order, according to the ministry.

The measure was taken to discourage import of luxury goods and reduce outflow of foreign exchange.

Initially, the condition was not extended to transfer of residence scheme in order to facilitate importers to clear backlog of stranded vehicles at ports as a large number of orders were already placed by Pakistani auto importers in Japan. It takes around 40 days for used cars to arrive in Pakistan from Japan. However, the government, on December 4, 2017, removed the relaxation on import of used cars under transfer of residence scheme, which is the most useable incentive.

Analyst Rai Omar Basharat at Topline Securities said an average monthly import of used cars stood at 6,800 units during the first five months of the current fiscal year of 2017/18 as compared to around 4,600 units/month in FY2017.

“Import of used cars jumped considerably in 5MFY18 due to improving macroeconomic indicators and better law and order situation,” Basharat said. “In 5MFY18, the imports of used cars clocked in at 34,000 units. An estimated 55,000 used cars were imported in entire FY17.”

Used car imports amounted to $500 to 750 million in the last fiscal year, contributing around Rs60 to 70 billion in annual tax revenue to the national kitty.

Car dealers said the decision would dent the government revenue collection.

An official said the commerce division’s plan could not be implemented as the importers and other stakeholders have already approached a local court against the ministry’s order. The court will conduct hearing on the case on January 23, the official added.

A car importer said the order, if implemented, will discourage the import of used cars and allow the existing local assemblers to strengthen oligopoly. Local assemblers come under criticism for increasing prices and lack of competition leaves customers with no other option but to buy local cars.