In a move set to revitalize the automotive sector, the Pakistani government has recently abolished the regulatory duties on the import of used cars up to 1800cc. This significant decision, a departure from the previous policy of imposing heavy duties, is poised to have wide-ranging implications for both the automobile market and consumer choices. This article explores the nuances of this policy change, its impact on the automotive business, and the broader effects on the local industry.
The Abolishment of Regulatory Duties
The government’s decision to repeal regulatory duties on imported used cars up to 1800cc marks a pivotal shift in Pakistan’s automotive policy. This change comes after the initial imposition of a 100% regulatory duty under SRO1571(I)/2022 in August 2022. The duty, initially set to expire in February 2023, was extended to March 31, 2023. This move signaled a significant effort by the government to regulate the burgeoning import market. However, it’s essential to note that cars with an engine capacity exceeding 1800cc will still incur a 70% regulatory duty. This tiered approach reflects a nuanced strategy aimed at balancing the need for economic regulation with the growing demand for imported vehicles.
Impact on Business and Economy
The abolition of these duties is poised to bring a significant downturn in the prices of imported used cars, a relief to consumers and importers alike. The government’s prior policy of containing imports through heavy taxation, while effective in curtailing a $400 million impact, had severely affected the car business across the country. Additionally, the decision aligns with the expiration of two Statutory Regulatory Orders (SROs) that had increased RD and additional customs duties. The automotive sector, especially the market for used cars up to 1800cc, is anticipated to witness a considerable price reduction, bringing major relief to consumers.
Federal Board of Revenue (FBR) Statement
In response to these policy changes, the Federal Board of Revenue (FBR) officials confirmed the news, albeit awaiting the release of the official Statutory Regulatory Order (SRO) for a formal announcement. This confirmation underscores the government’s commitment to adjusting its regulatory framework in response to market dynamics and the needs of the automotive sector.
Benefits of Reduced Taxes
The reduction in taxes is expected to benefit approximately 500 to 700 imported cars of various engine capacities that are currently stuck at ports due to non-availability of foreign currency. The removal of regulatory duties on used cars up to 1800cc, while maintaining a 70% duty on vehicles over 1800cc, represents a balanced approach. Additionally, the withdrawal of additional customs duties, imposed in August 2022, is set to further ease the financial burden on importers and consumers.
Challenges for the Local Industry
Despite these positive developments for importers and consumers of foreign cars, the local automotive industry faces ongoing challenges. The State Bank of Pakistan (SBP) has not been issuing Letters of Credit (LCs) for kits of locally assembled cars, leading to repeated shutdowns by major manufacturers like Toyota, Honda, and Suzuki. The removal of the 100% regulatory duty benefits importers and companies selling Completely Built Units (CBUs) but does not offer respite for the local industry, signaling a need for a more comprehensive policy approach that supports both import and domestic sectors.
The abolition of regulatory duties on imported used cars in Pakistan represents a significant shift in the government’s automotive policy. While it brings major relief to importers and consumers, the local industry continues to grapple with challenges. This development underscores the complex interplay between government policy, economic objectives, and market realities in the automotive sector. As Pakistan navigates these changes, the balance between supporting local industry and meeting consumer demand for imported vehicles remains a crucial aspect of its economic strategy.