Used car sales to fall, state revenues may take a hit

Importers say government may not achieve tax target from vehicle imports

KARACHI: A 10% increase in import duty on used cars will only slow down sales and ultimately hit government revenues that it wants to increase to bridge the shortfall, say used car importers.

Earlier this week, the government imposed additional duties in a bid to cover the tax shortfall of Rs40 billion in the first quarter of the current fiscal year. This included a 10% increase in import duty on used vehicles above 1,000cc engine capacity, which is expected to significantly increase the prices of imported used cars.





“This additional duty will hit car imports and hence the government may not be able to achieve its target of boosting tax collection from vehicle imports,” All Pakistan Motor Dealers Association (APMDA) Chairman HM Shahzad said while talking to The Express Tribune on Wednesday.

The duty on vehicles up to 800cc will remain unchanged at $4,800, while duty on cars between 801 and 1,000cc would be maintained at $6,000.

However, the duty on 1,001cc to 1,300cc used cars has been increased from $12,000 to $13,200 and their prices will rise Rs95,942 keeping in view the 24% depreciation rate. Similarly, prices of 1,301cc to 1,500cc vehicles will jump Rs135,118 as the duty has been pushed up from $16,900 to $18,590.

Prices of used cars from 1,501cc to 1,600cc will go up Rs163,902 following the increase in duty rate from $20,500 to $22,550 and the price tag of 1,601cc to 1,800cc cars will rise Rs203,078 as the duty has been increased from $25,400 to $27,940.



“The increase in duty is unjust because the government has not changed the duty structure of new imported cars or completely built units (CBUs),” Shahzad said.

Used car importers say they paid over Rs50 billion in taxes to the government in the previous fiscal year that ended on June 30 - a figure that is likely to come down after the imposition of revised duties.

The additional duties on different raw materials are also expected to have an impact on local carmakers, but it will be marginal compared to used car imports.

“We are still calculating the impact of new duties on local car companies, but I think the price increase will be close to Rs20,000-25,000 on a 1,300cc car,” an official of a local carmaker said on condition of anonymity. “We will definitely pass this on to the customers; we do not have any choice.”



A manufacturer of auto parts pointed out that the government had increased duties on the import of different raw materials of the auto industry.



“There are thousands of auto part makers that cannot bear these taxes because they are either too small or are handicapped due to delay in release of sales tax refunds,” he added.

The government is yet to announce a new auto policy that is due for over two years. Automobile manufacturers, auto part makers as well as used car importers agree that the delay in the policy has badly hurt the overall industry.

Published in The Express Tribune, December 3^rd,  2015.

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