Trade deficit turns out to be blessing for local car assemblers

Regulatory duty has been enhanced on import of all used cars

KARACHI: It seems as if the government has paid full heed to decade-old demands of the existing car assemblers in the country.

As the dust settled on the issue of regulatory duty on new and used car imports, industry stakeholders realised they were in for a bigger shock than what they had earlier imagined.

According to latest details, regulatory duty has not just been enhanced on used vehicles over 1,800cc, but across all engine categories - on new and used vehicles - by 15%, effectively making all foreign cars expensive.

The import of used cars has come to a complete halt after the recent changes. While the changes were made due to the increasing trade deficit, it has, ironically, given a major boost to the local industry that has long been criticised for being a cartel that hinders entrants and disrupts free market competition.



Also, according to the new rules, owners of all new and used vehicles will now need to pay duties and taxes themselves or by local recipients supported by a bank encashment certificate showing conversion of foreign remittances to the local currency.

“The government cannot afford to kill this industry as it generates Rs70-80 billion in revenues annually,” All Pakistan Motor Dealers Association (APMDA) Chairman HM Shahzad said. “We have been following these same procedures for over 50 years and the government knows it well.”

Car importers have been importing used vehicles through three major schemes; personal baggage, transfer of residence, and gift scheme for decades.

But changing dynamics of the economy, which have seen the country’s foreign exchange reserves decline drastically, have meant that the government has been forced to take action.

On Thursday, APDMA wrote a letter to Prime Minister Shahid Khaqan Abbasi urging him to intervene and save the industry from collapse.

Shahzad, who represents the powerful lobby, is confident that he would succeed in taking time from top government officials in Islamabad on Monday or Tuesday.

According to rough estimates, Pakistan does not even import 1,500 brand new vehicles a year. However, the country imported about 65,000 used cars in fiscal year 2017 compared to about 56,000 units in the previous year.

Local car assemblers and money changers have long been blaming used car importers for hurting the national economy as they take out dollars from the local market through illegal means.



Recently, leading money changers have urged the government to restrict the ballooning used car imports if it wants to maintain the rupee-dollar parity in the open market. Due to political uncertainty in recent months, the State Bank of Pakistan (SBP) has been trying to control the value of dollar in the open market.

Pakistan imports $300-$500 million worth of used car annually, according to a recent report of Topline Securities. However, according to the calculations of local car industry officials, Pakistan is spending close to $750 million a year on used car imports.

Published in The Express Tribune, October 27^th, 2017.

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