500% more taxes on imported cars

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3. 500% more taxes on imported cars

ISLAMABAD: In stunning discoveries, the government has levied up to 500% extra levies on imported automobiles to shield the domestic car assemblers from global competition. In exchange, though, the assemblers have passed on the misery by overcharging consumers and delaying delivery up to one year.

The disclosures were disclosed at a hearing of the Public Accounts Committee (PAC) – the Parliamentary watchdog – leading the committee to urge examining the unwarranted protection supporting the abovementioned firms in fleecing customers on imported cars.

The PAC proposed that the government revoke the designation of “manufacturers” instead labelling (and treating) them as “assemblers” – a recommendation, if translated into legislation, will aid diminish protection levels enjoyed by the assemblers.

According to the PAC, protection is offered by the enforcement of custom taxes, additional custom duties, sales tax, further sales tax, federal excise duty and income tax at rates that are significantly greater than imposed on the import of parts for locally manufactured autos.

Local assemblers have 241% to 500% protection, disclosed Mujtaba Memon, the Special Secretary of Commerce.

“Before the current implementation of extra tariffs, the protection level was in the region of 100% to 390%,” he stated.

Headed by Noor Alam Khan, the PAC determined that local auto assemblers failed to follow their agreements, over-charged consumers by forcing them to pay a price higher than specified at the time of booking and delayed delivery for over a year.

The PAC instructed the Ministry of Industries and Ministry of Commerce to study the protection and establish a policy within one month addressing the challenges being encountered. It also urged companies to charge reduced federal excise tax rates on imported cars compared to the ones payable on imported autos.

The Secretary Industries Imdadullah Bosal stated, “Any modification in the tariff policy at this time may antagonise the key manufacturers, but the government will endeavour to develop a complete strategy within a month to eliminate the exploitation of consumers.”

The PAC asked the businesses to deliver automobiles within a month in situations where full payment had been received. It also advocated decreasing the whole delivery term to one month and if the car is not given, the corporation will pay late delivery penalties.

Bosal stated, “The corporation cannot accept more than 20% advance and the delivery needs to be made within two months in imported cars. On a delay over two months, the corporation needs to pay a punishment equivalent to Karachi Interbank Offered Rate (Kibor) + 3%. The corporations have paid Rs1.9 billion in fines on this account throughout the period of Nov 2021 to April 2022.”

If the firms do not improve the delivery schedule, the PAC advised the government decrease taxes on 800cc to 1,300 cc imported autos to foster competition. It additionally requested that the government extend the age restriction of imported autos from three to five years and urged the FBR to check the finances of the car assemblers.

“Imports permitted should equal to less than the production capability of domestic auto assemblers,” stated Pakistan Tehreek-i-Insaf Senator Mohsin Aziz.

To which the secretary industries stated that, “Against the overall production capability of 506,000 units a year, these enterprises altogether assembled 330,000 units in the previous fiscal year.”

“The Industries Ministry is working on a plan to restrict the corporations from reserving automobiles with delivery periods of over two to three months, and the vehicles should be obtained via wholesale dealers instead of car assemblers,” said Bosal.

“A plan to phase down the SRO-regime and replace it with the tariff structure from the next policy implementation period was also ongoing, he added. The government was extending protection to these assemblers by 2006 statutory regulatory regulations.

According to PAC members, these enterprises have been functioning on half their capacity for the previous several years, artificially generating demand and supply concerns. In 2018, the assemblers produced just 273,279 automobiles, which in the previous fiscal year grew to 322,754 units, Bosal reported. However, a representative of a car assembler predicted that this year sales will continue in the region of 125,000 to 150,000 units owing to limitations on imports and increased pricing.

“If the corporations do not start behaving, the PAC will suggest allowing imports,” warned Khan.

The lawmakers also questioned auto assemblers and the government departments for taking advances of billions of rupees for undelivered items. By the conclusion of the past fiscal year, Indus Motors had accepted Rs112 billion in loans, Honda Atlas’s advances amounted to Rs23 billion and Pak Suzuki Motors Rs41.7 billion, according to the Secretary Industries.

A staggering Rs217 billion in advances existed against undelivered automobiles till June this year, according to the Secretary Industries.