Protectionism: Govt slaps up to 500% taxes on imported cars

ISLAMABAD: The government, pursuing an extreme protectionist approach, has slapped up to 500% more taxes on imported cars to cushion the local car industry from overseas competition.

The plan was revealed by Commerce Additional Secretary during a meeting of the Public Accounts Committee (PAC).

The committee, chaired by MNA Noor Alam Khan, strongly recommended revising the undue protection that’s helping the local carmakers in skinning the buyers.

Protectionism refers to the government's economic policies that limit international trade to facilitate domestic industries from getting thrown out of business because of cheap imports. These policies are usually implemented with the goal to improve economic activity within a domestic economy but can also be implemented for safety or quality concerns.

Khan said that after the previous meeting of the committee, the car manufacturers further increased the prices. “These are not the car manufacturers but the assemblers,” he said.

He recommended the government withdraw the status of “manufacturers” instead of calling (and treating) them as “assemblers” —  a direction if converted into law, will help lower the protection levels the assemblers were exploiting right now.

“If we can reduce the tariff on the import of old vehicles and if the duty protection from 500% is reduced to 400% even then they can still make a lot of profit,” PAC member Saleem Mandviwalla said.

The PAC chairman said that the customers who paid 100% payment in advance should not be charged more with an increase in car prices. He said automakers pay 10% duty instead of 35% by bringing the engine in three parts. “Is it true that the CKD kits are made in three parts to save taxes,” he questioned. The FBR officials replied that it is not determined by the FBR but by the Engineering Development Board.

Local assemblers enjoy 241% to 500% protection, revealed Mujtaba Memon, the Special Secretary of Commerce. “Before the recent imposition of additional duties, the protection level was in the range of 100% to 390%,” he said.

The PAC directed the Ministry of Industries and the Ministry of Commerce to review the protection and make a policy within one month addressing the issues. It also instructed them to charge lower federal excise duty rates compared to the ones applicable to imported cars.

The committee directed the car manufacturing companies to deliver vehicles within one month to customers who pay 100% payment in advance.

The ministry of industries and production secretary told the PAC that car manufacturing companies take advance money ranging from 20% to 100% while none of the manufacturing plants is running at 100% capacity.

The Auditor General of Pakistan said if they are running their plants at 50% capacity, 50% car import may be allowed to improve the persisting situation. The secretary told the committee that cars are meant to be delivered within 60 days after bookings and if a company does not do so, it will be charged a KIBOR of 3%. He told the committee that in the last two years, car companies have paid Rs1.9 billion to customers.

PAC Chairman Noor Alam Khan said that even after receiving the full payment in advance, the car makers demand Rs400,000 more from the customers. “Under which law such a demand is made,” he asked.

The industry secretary said that over Rs217.6 billion is lying with the car manufacturers as advance payment, adding that due to low demand, manufacturers are operating at a low capacity, so the government suggests that car manufacturers not make bookings beyond three months. 

The committee said the car companies must not take an advance amount of more than 20% for booking and if the vehicle is not delivered within 60 days despite the 20% advance, they will have to pay interest at 3% KIBOR after 30 days.

Khan said that after the previous meeting of the committee, the car manufacturers further increased the prices. “These are not the car manufacturers but the assemblers,” he said.

 The secretary further added that the annual demand for vehicles in Pakistan is 0.35 million. The committee members said vehicle manufacturers “are allowed 200% profit but the quality of their parts is substandard”.