Auto industry feels the heat as used cars imports increase

ISLAMABAD   -   The auto sector has called on the government to curb the increasing imports of used cars.

Talking to WealthPK, Indus Motor Company Chief Executive Mohammad Ibadullah said the local automobile industry was vital for attracting foreign investment, promoting technology transfer, and generating substantial tax revenue.

He said the auto sector imported $1.57 billion worth of parts in 2022-23, with all payments made through the banking channel. Conversely, payments for importing used cars were made through the ‘grey channel’, transferring foreign exchange unofficially.

He further said 13 brands currently produced over 40 models nationwide, with a combined annual capacity of 500,000 units. Despite this, the influx of imported used cars poses significant sustainability challenges for the local industry. “The automotive industry, including vendors, provides up to 5 million direct and indirect jobs, whereas the number of jobs created by the used car importers is negligible,” Ibadullah added.

The auto sector also raised concerns about the misuse of gift schemes for import of second-hand vehicles often by the commercial importers.

Talking to WealthPK, Rukhsana Shah, Member of Suzuki Pakistan Board, highlighted significant the surge in the used cars market. Shah emphasised that this increase not only facilitated the transfer of funds through informal channels but also posed a serious threat to the domestic automotive industry. She urged the government to implement protective measures to safeguard the local industry from these adverse effects.

Talking to WealthPK, Abdul Rehman Aizaz, Chairman of Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM), said the influx of imported used vehicles was causing revenue losses to the government. This shift away from locally produced cars causes the loss of taxes and duties that otherwise would have been collected, he highlighted.

Talking to WealthPK, Mr. Jamali, a member of the Governing Board of Indus Motor Company, said they had asked the government to allow the commercial imports of used cars so that they would also become importers.

Jamali noted that on April 1, 2023, the Additional Customs Duty (ACD) on used cars was reduced from 35% to 7%, and the regulatory duty (RD) was reduced from 100% to 15% for vehicles up to 1800cc and 70% for vehicles above 1800cc. In contrast, the sales tax on locally assembled vehicles above 1400cc was increased from 18% to 25%, along with other duty and tax hikes on the local industry. In its budget proposal, the auto industry has called for equalizing the RD and ACD between locally assembled vehicles and used cars. Additionally, the government has been urged to reduce the depreciation rate from 1-2% to 0.5% as specified in import policy, custom general order number 14/2005, and SRO 577(I)/2005.

The auto sector has also suggested that the government ensure the import of used vehicles solely for the use of overseas Pakistani families, not for commercial sales.

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