Billions being lost due to anomaly in import tariff policies

Import of high value, high price items are being cleared at low duty due to anomaly in import tariff policies as duty is paid on the basis of weight of imported item instead of its market price. Pakistan is having a policy of applying import duties on parts by taking into consideration only the weight of the part rather than its market value which results in a monumental loss to the national exchequer.
Luxury items are by definition expensive; however, importing parts either for a luxury car like Mercedes or cars like Suzuki, Toyota cost the same if they weigh the same. The market values of both the mentioned items are worlds apart, according to auto industry sources here.
"Spares of engine, transmission, suspension, and body parts like hoods and fenders are more likely to be imported through wrong declarations to avoid custom duty, while smaller parts like ball bearings, filters, spark plugs, are prone to smuggling through the porous borders of the country," Syed Nabeel Hashmi Chairman, Pakistan Association of Auto Parts and Accessories Manufacturers (PAAPAM) said.
Throughout the world, customs duties are calculated on ad valorem percentages of the imported items. For instance BMW windshield wipers should be imported at a higher ad valorem tax on account of the item being of a luxurious nature. On the other hand, this tax for windshield wipers imported for the locally produced cars should be abysmally low so that the government could give extra incentive to local carmakers to invest more in their expansion. Also, the higher duties on import of luxury items or imposition of fair duty structure could protect local industries from unfair competition.
This illogical and unfair policy is adding to the woes of auto part makers who are already suffering from the unchecked import policy of five year old cars which cost as much as a new locally produced car while making Pakistan a junkyard. According to the data, in the year 2007-08 the number of used car imports stood at 13,000 units, in 2008-09 it was 7,000 units, in 2009-10 this stood at 4,000 units and in the year 2010-11 the figure was 7,000 units.
However, this is showing a rapid increase in the numbers. In the current fiscal year from July 2011 to January 2012, total 27,101 units of used car have been imported. In July it was 2,386 units, in August 2,759, in September 3,399, in October 2,888, in November 4,278, in December 6,704, and in January 4,687 units of used cars were imported. Based on this data, the imports of used cars are expected to exceed 40,000 units in the current fiscal, which is 25 percent of total industry volume for the FY 2010-11.
The anomaly does not only worries car makers but likewise the parts manufacturers which are the backbone of engineering sector in Pakistan and employ close to three million youth of the country are also suffering.
Hashmi said the customs authorities didn't have any record of the import of the Chinese spare parts that were easily available in all markets whereas according to the Chinese customs they had exported dollars 1.4 billion worth of auto products to Pakistan last year.
He said that such practices enabled unauthorised importers importing genuine or mis-declared parts illegally to sell them at lower prices than genuine parts sold by Original Equipment Manufacturers (OEMs), prices of which would always be higher as they were making full payment of applicable duties and taxes. Importers further indulge in under-invoicing and hurt the national kitty.
Sources revealed that recently some 27 containers full of imported hoods and fenders were detected at the ports; all the consignments were believed to be under-invoiced. They said that more than Rs 1.1 billion worth of tax and duty evasion through smuggling and mis-declaration at the ports has been detected for this year to date. The bulk of duty evasion, they further added, occurred with unscrupulously taking undue advantage of the loopholes in the Afghan Transit Trade through which Rs 0.9 billion worth of imports by unauthorised importers is taking place, whereas small parts import via air cargo constituted 13 percent on which no duty was paid. "Auto industry, despite all the bottle-necks, continues indigenisation of its manufacture and assembly and is well on the track to achieve its goal of adding half a million cars annually by 2012. But if the government turns a deaf ear to its legitimate concerns and pleas, the situation will deteriorate further," source said.
"It is, therefore, high time the government slaps duties on items with regards to its assessed market value. Doing so, the government could expect an upward multiplier effect. Also, it should reduce duties and taxes on the automakers to spur more growth and generate more jobs," he said.