Rationalisation: Reduced tariffs likely on vehicle import

FBR may introduce new tariff slab for consumers desiring to switch from bikes to smaller cars.

ISLAMABAD:

The government is expected to reduce duties on imported vehicles in the next budget and is planning to offer a big relief to middle-income car users by introducing a new slab with low tariff for those who want to switch from motorcycles to small cars.

The plan to rationalise tariffs on imported vehicles is at a final stage that may be announced in the upcoming budget for 2014-15, say senior government officials.

In the first phase, approval of the Economic Coordination Committee of the cabinet will be sought, which is soon expected to give the go-ahead to the Auto Development Policy for the next five years.

Any such package will mark a shift from the policy of protecting domestic auto assemblers at the expense of consumers. In the past, plans to cut duties were opposed by the Federal Board of Revenue (FBR) and the lobbies working to protect the interest of local assemblers.

In the last fiscal year 2012-13, Pakistan imported vehicles worth Rs121 billion with Rs69.1 billion paid in taxes including Rs42.3 billion in customs duty, according to the FBR documents.

Officials believe that despite the rationalised tariffs the FBR will get significantly higher revenues due to an expected surge in imports.

Under the plan, maximum benefit may be offered to those who are paying higher duties, particularly those desiring to switch from motorcycle to a small car.

Against the current lowest slab of up to 800cc engine capacity carrying 50% customs duty, 17% sales tax, 5% income tax and 1% federal excise duty, the government was likely to introduce a new slab of up to 700cc with reduced customs duty, officials said.

Because of heavy duties, most of the people are not able to purchase cars of 660cc, which cost in the range of Rs800,000 to Rs1 million, according to market analysts.

In case of cars having engine capacity of above 1800cc, the importer is paying 150% in customs duty in addition to other taxes.

Now, the government wants to differentiate between buyers of 1,801cc and 3000cc vehicles, according to officials. It may merge the current three slabs of 1501 to 1600cc, 1601 to 1800cc and above 1800cc and announce a new slab of 1500 to 2000cc with duties far less than currently paid.

At present, users of 1501 to 1800cc cars are paying 75% in customs duty in addition to other taxes, according to the FBR.

There may be two new slabs, one from 2001 to 3000cc and the highest slab for above 3000cc vehicles.

According to officials, the importers of up to three-year-old used cars are paying a price with which they can buy a new imported car, provided the government reduces tariff rates. Another consideration is to facilitate the customers in buying a quality vehicle.

However, the government would not increase the age limit of used cars that would be kept at three years, they said.

No used vehicles older than three years would be imported and no used vehicles would be brought into the country except through the personal baggage scheme, transfer of residence scheme and gift scheme, they added.

To stop misuse of the schemes, the duty on imported vehicles will be paid in dollars by expatriate Pakistanis through the banking channel.

“The government should allow direct imports that will provide a wide range of vehicles to the customers,” suggested HM Shahzad, Chairman of the All Pakistan Motor Dealers Association, adding the restriction of importing used vehicles only through special schemes should be abolished.

Published in The Express Tribune, May 2^nd, 2014.

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