Auto industry recommends introduction of 'transfer tax'

Local auto industry is consistently making all-out efforts to curb premiums and invested approximately $140 million in capacity enhancement with a major recommendation to introduce 'transfer tax' on transfer of vehicles. In an open hearing arranged by Competition Commission of Pakistan (CCP), CEO Indus Motor Company, Ali Asghar Jamali represented the auto industry of Pakistan along with representatives from Atlas Honda and Pak Suzuki.
The officials of the Pakistan Business Council (PBC) from Karachi strongly supported local manufacturing of vehicles as compared to used imported cars to create a business environment with maximum local job creation in Pakistan. The success story of the auto industry is evident from the fact that 3-4 new investors or companies are coming into Pakistan.
The PBC officials added that there should be a mechanism to check the safety features of the used and old cars. Such features of the damaged cars being imported into the country needs to be checked whether safety standards are being complied with by the imported cars.
Ali Asghar Jamali gave a briefing to the participants on the steps that the industry and IMC, in particular, have taken to facilitate customers, especially with regard to delivery time and menace of premium which is hurting the auto manufacturers and consumers alike. He said that the industry takes this open hearing by CCP as an opportunity to share its efforts in reducing premiums and curbing black marketing of new vehicles. The major three major recommendations to the government included introduction of wholesale/retail mechanism for sale of vehicles, transfer tax and mechanism to control booking of multiple cars by investors on computerized national identity card (CNIC) numbers. A time limit could be fixed for introduction of transfer tax on sale of vehicles. However, the federal government said that it is a provincial matter which needs to be decided with the consensuses of provinces.
However, he regretted that the government's response for the IMC proposals against premiums is still awaited. No action has been taken on wholesale/retail mechanism and the suggestion regarding transfer tax is still unheard. Members of the CCP including its chairperson asked the local manufacturers to explain steps taken to improve the quality of the locally manufactured vehicles and address complaints of consumers on quality and safety features.
The CCP Members also objected the warranty standards of the local cars and asked the manufacturers whether or not the warranty standards have been complied with, as the commission has received complaints on warranty standards. Consumers from various segments of the society raised issues like premiums, high prices of locally manufactured vehicles and delay in delivery of vehicles.
Responding to different queries of consumers, Ali Asghar Jamali responded that all OEMs operating in Pakistan work under technical assistance agreements (TAA) with their global counterparts and strictly adhere to all of their global standards with respect to production and quality. Around 80,000 old and used cars were imported in one year period without providing after sales service to the consumers, he pointed out.
To a query, he categorically said that there is no shortage of cars in the country. "We have to check investors who have the capacity to book several cars on multiple CNICs, even CNICs from FATA have been used to book cars.
Highlighting the efforts made for progressive localization, he said that industry has achieved more than 60 percent localization on their flagship products and the players continue to study the techno-economic feasibility of further parts. However raw materials for all localized parts continue to be imported as Pakistan doesn't manufacture either auto grade steel sheets or resin which are the two primary raw materials for all auto parts. After becoming signatory to Trims and GATTS agreement, the government had to do away with industry specific deletion program and instead it introduced tariff-based system. Non-localized CKD is imported at 30% and localized CKD imported at 46%. Irrespective of the fact that there is no mandatory localization regime anymore, all OEMs continue to pursue localization based purely on cost merit.
To a query, the FBR secretary customs tariff informed the meeting around Rs55 billion is the cost of exemption given to vendors and original equipment manufacturer (OEM) in auto sector during 2017-18 against Rs45 billion tax concessions in 2016-17. All parts of vehicles available in the local market cannot be declared as smuggled or from illegal channels as a large quantity is imported under documented channels of WEBOC customs clearance system. The importers of spare parts are contributing billions of rupees to the national kitty, the FBR secretary customs tariff added.
The representatives of the Ministry of Commence informed stakeholders that MoC welcomes proposals of stakeholders on trade policy pertaining to the auto sector. Any trade body intended to make proposals on auto sector can submit its proposals to the ministry for consideration. About the recent price hike, Ali Asghar Jamali explained that the rupee depreciated by almost 10% whereas manufacturer increased their prices by 3% to 4% only. Furthermore, RD on raw material led to increased steel prices while increasing utility cost due to prevalent electricity load-shedding is adding to the cost pressures.
He said that almost all OEMs have either increased their capacity or are in the process of increasing it. The IMC has recently invested $40 million and enhanced its capacity by 20% to meet the growing demands and to shorten delivery period. Suzuki has invested $63 million in the last 2 years and plans to invest $460 million further. Atlas Honda plans to invest $35 million.
Additionally, he said that IMC has gone so far as to cancel thousands of suspected investor's orders where multiple vehicles were booked on the same CNIC in the last 2 to 3 years. The IMC is continuously making efforts to identify investors and curb the practice of charging premium on cars. Moreover, he said company has made the process transparent as vehicle availability on IMC website is the easiest way for customers to track their orders. He also mentioned that on late deliveries IMC makes a payment of Kibor + 2% to its customers. In rupee terms this has amounted to Rs0.5 billion to date paid by IMC and Rs1.5 billion to date paid by the industry as a whole. Ali Jamali said that the staggering import volume is a threat to the future of the domestic industry and is a gross misuse of used car import policy by commercial importers under baggage scheme. He said that auto policy brought stability and certainty to the industry, which is conducive for investments in this sector. It is very unfortunate that in just 2 years multiple changes have been done in ADP. From imposing RD on raw material to recent retraction on import of used cars policy, all had negative impact on industry and ultimately customers.
He concluded that Pakistan has immense potential when it comes to auto industry. It is one of the 40 automobile manufacturing countries in the world. This potential, coupled with a favorable auto policy has attracted many new assemblers. "We welcome these new players and expect that they will support in localization. The auto sector is the host to 3 million direct and indirect employees and the largest contributor to national exchequer." If provided with transparent and stable regime, it can serve as launching pad of economic growth, he added.
The representatives of the commercial vehicles from Japan and importers of old and used cars pleaded their cases with the argument that the government must provide ample opportunities to allow liberal imports of vehicles. "We can reduce the cost of imported vehicles up to the price of a local Mehran if we have been given concessions and relaxations in import policy," he added. They said that regulatory duties have a very serious impact on the import of old and used vehicles where the cost of imported cars has suddenly gone up.