MoI&P among key supporters of used cars import

The Ministry of Industries and Production (MoI&P) is reportedly one of the key supporters of commercial import of used cars, which, analysts maintain, may destroy local auto industry, sources in the Engineering Development Board (EDB) told Business Recorder.
The local auto industry currently, which contributes billions of rupees to national exchequer as taxes and duties, would be compromised if local industry is in crisis, EDB sources said. "The EDB does not support import of used cars on commercial basis but MoI&P, under the influence of importers, is supporting it," sources added.
Official documents show that MoI&P, in its January 4, 2011 comments on a summary of the Commerce Ministry, confirmed that importation of the age limit from 3~5 years was granted after long discussion with the objective of rationalising the price of local manufactured cars given that the landed cost of 4 to 5 years old cars is not substantially lower than the price of local manufactured cars of equal capacity.
MoI&P says that in 2005-06 when the same scheme was operative local industry produced 170,000 vehicles, indicating a healthy industry.
According to documents, MoI&P also agreed to continue with the 2~3 wheelers under the same three-year transfer of residence, baggage and gift schemes which is part of the Trade Policy.
With regard to depreciation, the MoI&P has supported the proposal of revision from 1 percent to 2 percent with cap of 50 percent, as impact for supporting the rationalisation of prices. Furthermore, reasoning that with 2 percent depreciation consumer will be entitled to the maximum depreciation of 50 percent even on the import of a vehicle that is only 25-month old, whereas currently consumer is entitled to maximum of 36 months.
MoI&P agreed to import 3-year or less buses with a road life of at least 5 years. On new entrants' policy, MoI&P has supported that new entrants should achieve localisation up to 50 percent in 5 years which current local assemblers achieve in 2 decades. Alternative proposal is as follows: "New entrant may be allowed to import 100 percent CKD (whether or not locally manufactured) at the reduced rate equivalent to 50 percent of the existing rate ie 32.5 percent or 30 percent, as the case may be, for the first 3 years, subject to the condition that the new entrants should achieve minimum indigenisation to the extent of 50 percent within 5 years for a competitive market".
Honda and Toyota have already slashed prices of their different models, whereas Pak Suzuki is also expected to revise its price downward shortly, he added.
Sources in EDB argued that depreciation from 1 percent to 2 percent cannot be changed as it was approved by federal cabinet in Trade Policy, and not by the ECC, keeping in view the country's foreign exchange reserves position.
"I believe that there is a need to work on removal of RD which helps reduce prices of second- and third-hand vehicles in the local market," said an official of Industries Ministry.
According to him, any change in AIDP or in trade policy is not possible without cabinet approval as is deferment of hi-tech parts pending with the government for the last two years.
A new summary, prepared by the Commerce Ministry, suggests that depreciation may be increased from 1 percent to 2 percent for 3-year old cars, for cars between 2-5 years old it may remain at the current rate of 1percent for the 4th and 5th year. The existing cap of the upper limit of depreciation up to 50 percent may accordingly be enhanced to 75 percent, application to import of trucks, buses, vans, and tractors. This increase eliminates the need for commercial imports of the used cars which would require financing through use of foreign exchange.