Cabinet has allowed all five-year-old vehicles

The Cabinet has dropped another bombshell on the local auto industry by allowing import of 5-year old motorcycles, trucks, buses and tractors. The Commerce Ministry is expected to issue necessary notification in a day or two as minutes of the Cabinet meeting were received in the Ministry after Friday prayers.
Official documents obtained from the Ministry of Industries and Production (MoI&P) show that the decisions taken by the Economic Co-ordination Committee (ECC) of the Cabinet in its meeting on January 13, 2011 were submitted to the Cabinet for information and confirmation. The Cabinet was informed that the ECC of the Cabinet, in its meeting on November 4, 2010 had decided to allow import of five-year old cars to release the pressure on demand of locally manufactured cars and thus to rationalise/stabilise their prices in the country.
The decision was duly endorsed by the Cabinet in its meeting on December 15, 2010. The implementation on the decision was, however, put on hold till its reconfirmation by the Cabinet. After discussion on the pros and cons of increase in age limit of used vehicles, the Cabinet endorsed the decision taken by the ECC in its meeting on January 13, 2011.
"The Cabinet reconfirmed the decision of the ECC pertaining to the permission for import of re-conditioned cars, motorcycles, trucks, buses and tractors and directed immediate implementation of the ECC decision to increase the age of the used vehicles from three to five years for their import in Pakistan," say documents.
Sources told Business Recorder that Ministry of Commerce, Ministry of Industries and Production (MoI&P) and Federal Board of Revenue (FBR) argued that the proposed change in the age limit of cars and other vehicles (trucks, buses, motorcycles and tractors) from current 3 years to 5 years would be an effective tool to reduce the prices of locally manufactured cars, without adversely affecting the local assemblers, for the reason that landed cost of cars aged 4 years to 5 years is not substantially lower than the price of locally made new cars of equal capacity.
"This argument is also substantiated by the fact that when transfer of residence and personal baggage schemes were relaxed by the Commerce Ministry in 2005-06, maximum number of second-hand/used cars were imported, but there was no negative impact on the local industry, which had touched highest production volume of over 170,000 units that year," sources quoted MoI&P as saying in its comments on the summary of MoC.
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 to 5 years was granted after long discussion with the objective of rationalising the price of locally 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.
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 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, the reasoning is that with 2 percent depreciation consumers will be entitled to the maximum depreciation of 50 percent even on the import of a vehicle that is only 25 months old, whereas currently a consumer is entitled to a maximum of 36 months.
MoI&P agreed to import 3-year old or less buses with road life of at least 5 years. On new entrants' policy, MoI&P 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".