No import of five-year old vehicles: government retracts its decision

The government has finally retracted its decision on the import of used cars, reliable sources told Business Recorder here on Saturday. According to sources, an SRO was issued by the Ministry of Commerce on Saturday, saying that the ECC decision of December 8, allowing import of used cars up to the age of five years should be read as three years.
Which means reverting to the position which existed till December 7, allowing only import of three-year old cars. Necessary instructions have also been issued to port authorities and customs to allow and clear only three-year old cars, with immediate effect.
It was feared that the decision to allow import of five-year old cars would have resulted in revenue and foreign exchange losses as the facility was likely to be misused, rather abused, by trader lobby while the consumers would have still purchased used cars at higher rates in the open market.
According to sources, time scale buying of used cars was witnessed in different cities of Japan, particularly Osaka, during November and December amid rumours in Pakistan that further two years' relaxation was being considered. Cheaper cars were bought in large numbers, while some of the buyers were also seen interested in SUVs and Sedans.
The trend, sources said, confirms that it were not Pakistani expats buying cars to ship back to Pakistan under personal baggage scheme, but actually a lobby, which was confident of getting the policy approved. The Prime Minister was reportedly unhappy over the recommendation to allow import of up to five-year old cars and had summoned and admonished officials concerned and sought their explanation, which was never given in a satisfactory manner.
A five-year old jeep model would have been the best deal under the relaxed policy, as small capacity cars would not have made much difference in price against five-year used car. Under the depreciation allowance, the jeep worth $30,000-$40,000 would save exorbitant amount for importer, who would never be a common man at all.
Sources said that the lobby behind misleading the government on forex and revenue loss was neither destroying local industry nor was it interested in giving relief to common man by import of cheap cars. However, the lobby, supporting imported cars, was actually interested in import of luxury vehicles.
Sales of locally produced cars have been hurt badly due to government's decision to give relaxation of two more years in the age of old cars to be imported. Many potential customers are instead waiting for the imported cars under new import policy as they expect to get those at much cheaper rates.
On December 8, the federal government allowed five-year old cars to be imported under personal baggage scheme instead of three years with depreciation of one percent on the value. A car dealer has alleged that it seems that the car importers were already aware of the decision, and their overseas agents had started buying up to five-year old cars a few months earlier.
He said that the prices of used cars in Japan have seen around 20 percent increase for up to 1000 cc models during last few months, which was the result of buying at large scale by Pakistan importers' agents. The car dealers even otherwise do not look too hopeful about the future of five-year old cars in Pakistan.
"The decision does not look a wise one as most models are changed every five years and spare parts production also shrinks which results in high spare part rates and exorbitant maintenance cost," commented another car dealer here. He said there are no arrangements from the importers to provide after-sale service of these cars and "we have had many complaints from the consumers in the past who return to us when they need parts but find us helpless."
When the importers do not arrange for the spare part imports and setting up proper service centres, the consumers regret their decision of buying old cars by spending their hard earned money," he added. He also had some reservations regarding the process of clearing such cars to hit Pakistani roads, claiming that a large number of 7-10 year old cars were imported during last few years in the country with the assistance of customs agents which not only hit the sales of local brands but most of the cars were soon shifted to junkyards as there were no spare parts available in the market.
Industry experts pointed out that the relaxation which was designed to be provided on the import of used cars was not restricted to small cars to make them affordable to low end consumers but it would have benefited high end consumers to cheaply import luxury cars.
They alleged that the used car policy had been deliberately designed to facilitate wealthy consumers to import high expensive luxury vehicles at very low rates while vested interests also tried to influence the government to increase the current depreciation rate of one percent on used luxury vehicles to two percent per month to a maximum reduction of 50 percent for 25 months old vehicles.
They said that luxury vehicles are not produced in the country and the government had itself levied higher duties on these vehicles to discourage their use. However, by including luxury vehicles and sports cars under the used car policy, the government had negated its own policy. Commenting on the earlier decision of the government, stakeholders said it clearly indicated planners' preference towards trade rather than industrialisation although the local auto sector has contributed Rs 1,380 billion in revenue collection during 2009-10.
They said that parts of two locally produced cars (CKD) could be imported for the same amount of forex and duties paid to import a single used car of the same category, which will cut short revenue collection by the government to 50 percent. Local car production was gradually picking up after three years of deep recession but the recent decision of the government, to relax the age up to five years, which has now been taken back, would have resulted in further decline in production.
The vendors would have been forced to lay off most their workforce as orders from the manufacturers would have been very low. It was an unfortunate decision because fresh investment in auto sector is on the cards and the decision to allow five-year old cars would have, instead, pushed the manufacturers to roll back the auto development plan.
The uncertainty about duties on CKD, and changing policies on import of old cars had retarded the growth in this sector during last few years and the recent decision might have proved to be the last nail in the coffin of local auto manufacturing industry.
Although the relaxation was for personal baggage only, trader mafia had started to exploit the law to import old cars. The import of old cars up to five years of age would have benefited trader mafia instead of end-consumers which now would be the prime beneficiaries following decision to withdraw the relaxation in age limit, stakeholders said.