The country's local auto industry has expressed grave concerns over government's alleged intention to revive used car imports in the upcoming budget citing it as a revenue measure, well informed sources in Ministry of Industries and Production (MoI&P) told Business Recorder.
The surprising move came after used car importers lobby approached government and the tax authorities with an easy solution to plug revenue shortfall through import duty on used cars which went down after government recently issued SRO 52(I)2019.
The SRO was issued by the government after State Bank of Pakistan (SBP) reported that commercial importers and used car dealers are allegedly involved in importing over $2 billion worth of junk vehicles through hundi/hawala every year in contravention of FATF/AML laws.
According to statistics available with the federal government, every year, commercial importers were importing over 70,000 used vehicles by abusing used car import policy meant for Overseas Pakistanis. Importers would buy fake passports/IDs of overseas Pakistanis to import vehicles and subsequently selling these used vehicles without paying any sales or income tax - essentially evading all taxes.
The sources further stated that SRO 52 has helped government to counter the menace of non-banked transactions made in import of used cars. Used cars had been identified as one of the biggest sectors involved in illegal transactions as most of the payments were made through hawala/hundi and illegal channels. The sources further stated that for the same reason, government has directed beneficiaries of gift and transfer schemes to deposit duties in dollar amount from their account through SRO-52 in January this year, adding that Pakistan has to comply with the 10-point action plan for Paris-based Financial Action Task Force (FATF) and one of the tasks is to take enforcement action against illegal Money or Value Transfer Services (MVTS) since the import of used cars had been identified as one of the biggest sectors involved in illegal transactions.
Industry sources claim that the SRO resulted in massive savings of foreign exchange as illicit imports dropped significantly by up to 90% as importers found it difficult to comply with FATF/AML laws and document their transactions.
However, now used car import lobby used its "influence" to push the government to reconsider its decision and offered an easy solution for bridging revenue shortfall.
Former PAAPAM chairman Aamir Allawala expressed great concern at this move by the government terming it as extremely unfortunate and short sighted approach, if true.
He said Pakistan was the only automobile manufacturer out of 40 countries where used cars were being imported through misuse of gift and baggage scheme.
He said for every used car imported in Pakistan, local vendor industry loses 15 jobs and parts manufacturing business loses Rs 150, 000 on average.
In a country like Pakistan with population of 220 million, we need industrialization to provide jobs and increase GDP. Auto Industry is called the mother of all industries as for every job created in auto industry, 10 jobs are created in allied industries," he added.
"Sectors like imported used cars do not only hinder industrialization but result in flight of precious foreign reserves. Pakistan has imported more than 350,000 vehicles in the last decade at an average cost of $12,000 to $ 15,000 per vehicle," he reasoned.
A large faction of this money was channelled through illegal means, denting local economy and discouraging investment. He praised government's steps to counter misuse of used cars schemes by issuing SRO 52 and demanded that the government should reject any pressure from used car importer mafia or temptation of revenue.
He said, "We wish that government will adhere to ensure predictable environment through consistent policies and will not deviate from its decision. We have already paid a heavy price due to inconsistent policies and deviations for example when the Government increased the age limit of used cars to 5 years and 7 global automakers shut down plants in Pakistan. Similarly, last amnesty scheme on smuggled vehicles resulted in a loss of Rs 43.728 million to national exchequer." Allawala argued that consistency of policy is even more important now when Government has successfully attracted some global players to invest and manufacture vehicles in Pakistan.
"The new entrants want the government to meet its pledges," he stated.
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