WEDNESDAY APRIL 06: Baggage, gift scheme: ECC may allow import of five-year-old vehicles

ISLAMABAD: Economic Co-ordination Committee (ECC) of the cabinet is all set to allow import of five-year old used buses, tractors, trucks and vans under the baggage and gift schemes, well-informed sources in Commerce Ministry told Business Recorder. The ECC which is meeting on April 7 under the chairmanship of Finance Minister, Dr Hafeez Shaikh, will be given a detailed presentation by the Commerce Ministry on this issue.
Auto sector analysts argue that the decision to allow five-year old used trucks, buses, tractors and vans will massively hurt the local industry which is already in serious trouble after permission to import five-year old cars. Official documents reveal that the Commerce Ministry, in its summary to the ECC reiterated its earlier proposals which are as follows:
(i) commercial import of buses with capacity of 40 or more seats up to three years old may be allowed on the condition that such buses should be certified by some reputable pre-shipment inspection agency to the effect that they have a road life of at least five years; and (ii) age limit of trucks, tractors buses and vans etc may be increased to five years under the baggage and gift schemes.
According to sources, the three key auto sector companies, which are registered at the bourses are in the negative zone due to substantial decline in sales of their different models/units. Official summary of the Commerce Ministry, which will be considered by the ECC after a long delay, has also suggested that the new entrants of auto sector may be allowed to import CKD kits for the first three years as follows:
(i) components, parts and CKD kits not manufactured locally at 50 percent of the existing rate of 32. 5 percent ad valorem customs duty; and (ii) components, parts and CKD kits manufactured locally at 50 percent of the prevailing rate of 50 percent ad valorem customs duty. The Ministry of Industries and Production (MoI&P), however, has proposed that new entrants may be allowed to import 100 percent CKD (whether or not locally manufactured) at reduced rate of 5 percent for the first year, 10 percent for the second, and 20 percent for the third year.
Official documents show that the MoI&P, in its comments of January 4 on a summary of the Commerce Ministry, confirmed again that importation of the age limit from 3-5 years was given after long discussion and it was done only to rationalise the prices of the locally manufactured cars as an effective tool without effecting the local manufacture adversely as the landed cost of the cars aged 4 to 5 years is not substantially lower than the price of locally made new cars of equal capacity.
MoI&P has argued that in 2005-06 when the same scheme was in effect, the local industry produced 170K vehicles and did not suffer. 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 are part of the Trade Policy.
Regarding depreciation, the MoI&P supported the proposal of revision from 1 percent to 2 percent with cap of 50 percent, in support of rationalisation of prices. Furthermore the reasoning is that with 2 percent depreciation, consumers will be entitled to a 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 maximum depreciation on a 36 months vehicle. The MoI&P agreed to import buses not more than 3 years with a road life of at least 5 years.
On new entrants policy, the MoI&P supports CKD 100 percent on the condition that new entrants should achieve the localisation up to 50 percent in 5 years which current local assemblers achieve in 2 decades. Alternative proposal is that the 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 i. e. 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.
The Ministry of Commerce has also proposed that the age limit for imports of trucks, buses, vans and tractors may be increased from 3 to 5 years under the baggage and gift schemes. Industries Ministry supported the proposal. However, FBR changed its stance after withdrawal of notification allowing import of cars up to 5 years old. The FBR argues that the concessions proposed by the MoI&P on CKD kits are too liberal.