Ishaq Dar in a meeting with Pakistan Association of Automotive Parts Accessories Manufacturers (PAAPAM) on Monday. PHOTO: PID
The federal government agreed on Monday with auto part vendors to treat their sales to car assemblers as input instead of value-addition, paving way for the withdrawal of 2% additional sales tax being charged from vendors.
The understanding was reached during a meeting between Finance Minister Ishaq Dar and representatives of the Pakistan Association of Automotive Parts Accessories Manufacturers (PAAPAM).
“The finance minister acknowledged that the imposition of an extra tax of 2% on sales of auto parts to automobile manufacturers by auto parts manufacturers constitute a hardship for the industry and may have the undesired effect of escalation in the prices of vehicles,” according to an official handout issued by the ministry.
Paapam Chairman Usman Malik stated during the meeting that the additional 2% tax on items sold in retail markets was leading to an increase in vehicle cost.
Dar agreed with the assertion that sales made by auto parts manufacturers to automobile manufacturers were not to be treated as retail sales and it was not the intention of the Federal Board of Revenue (FBR) to subject these sales to extra tax.
Dar directed FBR Chairman Tariq Bajwa to institute a case for removing the anomaly in the taxation system.
While talking to The Express Tribune, Bajwa maintained that the government was not withdrawing the additional tax but merely issuing interpretations of law that will help treat the auto parts supplies as inputs instead of value-addition.
The association also proposed the federal government to levy 5% tax on the transfer of vehicle within six months of new purchases, a move aimed at discouraging hoarding and curtail the dealers’ practice of earning money by creating an artificial shortage.
Bajwa said the government may consider the proposal at an appropriate time.
Meanwhile, the association expressed concerns over the government’s decision to completely normalise trade ties with India and sought protection against opening the auto sector to Indian firms.
Dar directed officials of the Ministry of Industries and Engineering Development Board (EDB) to hold a meeting with the stakeholders of the automobile industry in order to resolve issues.
The Finance Minister also directed officials of the Ministry of Commerce to hold a meeting with the automobile industry representatives and present a report within one month on issues related to the Ministry. He assured Paapam that the recommendations will be considered in the next financial year 2014-15.
Malik gave a detailed presentation to Dar on the current status of the Pakistan automobile industry and its future potential. He said that there were 13 vehicles per 1,000 persons in Pakistan, while in Indonesia and Brazil the numbers 79 and 259 per 1,000 persons respectively.
Probably, what he did not highlight the fact that affording a vehicle in these countries was easier than in Pakistan where car manufacturers were fleecing customers.
Published in The Express Tribune, March 11th, 2014.
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This article was not clear enough for me. What would make sense is that there should remain a high price on the parts imported while the parts made indegenously be brought down significantly to promote car assemblers to turn local and become local manufacturers. These assemblers should be fined every year heavily for having broken the agreement which enforced upon them to turning local quite a few years ago, while the govt. also keeps a tight control on the prices of cars since the fines should not affect the end consumers.