Vintage for used cars import: FBR changes stance

In a surprise move, the Federal Board of Revenue(FBR) has opposed increase from 3 years to 5 years in age limit for used cars to be imported under three schemes of Commerce Ministry for overseas Pakistanis, sources close to Secretary Industries told Business Recorder.
"The FBR has changed its stance on increase in usage limit after withdrawal of the notification allowing import of 5 years old cars," sources said. They said that the issue will be tabled before the Economic Co-ordination Committee (ECC) of the Cabinet, scheduled to meet on Tuesday.
They said that the ECC in its meeting on November 4, 2010 had decided to increase the age limit for import of cars under baggage and gift schemes from three years to five years. For the decision of the ECC and subsequent direction in its meeting held on December 7, 2010, a notification allowing import of up to five years old cars under baggage and gift schemes was issued.
Later, in pursuance of the directions of Prime Minister Secretariat to put on hold the decision to increase the age of cars till reconsideration of the issue, another notification withdrawing facility of import of cars not older than five years was issued.
To further review the situation as per the directive of Prime Minister Secretariat, another meeting of the committee, constituted by the ECC held on December 31, 2010 on the basis of the inputs received from the Ministry of Industries and Production and Federal Board of Revenue(FBR) on the draft summary prepared by the Commerce Ministry, consensus emerged on the following points (i) Depreciation- increase in the rate of depreciation in assessable value from the existing level of 1 to 2 percent per month up to a maximum of 50 percent on the import and; (b) Import of Buses- commercial import of buses with the capacity of 40 or more seats up to three years old may be allowed with the condition that such buses should be certified by some reputable pre-shipment inspection company to the effect that they have a road life of at least 5 years.
Sources said that consensus has, however not been achieved on increase in age limit of cars, trucks, etc, from 3 to 5 years as Ministry of Commerce proposes that the age limit for import of cars, trucks, buses, vans and tractors may be increased from 3 to 5 years under the baggage and gift schemes. Ministry of Industries and Production supported the proposal. However, FBR changed its stance after withdrawal of the notification allowing import op cars up to five years old.
Giving justification for the proposal, Commerce Ministry is of the view that age relaxation will not have negative impact on the local industry.
Commerce Ministry further argues that when the age limit of cars under the baggage schemes was relaxed from 3 to 5 years and the condition of registration was dispensed with the year 2005-06, the number of used cars imported under these schemes was only 38,499 units against the local production of 170,487 units.
"There is no negative impact on production volume which was over 170,000 units during that year. Similarly, negligible quantities have been imported in case of buses, vans and tractors. Over a period of 3 years, from 2007-08 to 2009-10, only 264 trucks, 1470 buses and vans and 2 tractors were imported. Ministry of Industries also has the same view.
According to sources, Commerce Ministry has also proposed that new entrants of auto sector may be allowed to import CKD kits for the first 3 years on the following condition: (i) Components, parts and CKD kits not manufactured locally at 50 percent of the existing rate of 32.5 percent ad valorem customs duty, and; (ii) components, parts and CKD kits manufactured locally at 50 percent of the prevailing rate of 50 percent ad-val customs duty.
Ministry of Industries, however, has proposed that new entrants may be allowed to import 100 percent CKD (whether or not locally manufactured) at the reduced rate of 5 percent for the first year, 10 percent for second, 20 percent for third.
FBR, in its comments has stated that the concession proposed by the Ministry of Industries on CKD kits is too liberal. However, FBR has supported the proposal of Commerce Ministry.