MoI&P Analysis on Planning Commission’s Proposal .

The imported car tariff structure directly benefits the affluent class only, while consumers belonging to lower income groups will not get any substantive benefit. Ministry of Industry and Production (MoIP) analysis on Planning Commission’s (PC) proposed cars import tariff structure revealed on Tuesday.

The PC has proposed to immediately cut import tariff (to a maximum and uniform rate of 25 percent) on all motorcars. MoIP, after analysing the bad impact of this proposal on local auto industry, has strongly opposed the proposed immediate cut on import duty of cars and bringing such import duty at 25 percent with applicability of uniform rate on all makes of cars in Pakistan.

The analysis on the PC’s proposal said that the auto industry is considered as the mother of all industries and engine of growth due to its multiple effects. In the formative phase all advanced economies including those of Japan, India, Thailand, Malaysia and Europe resorted to tariff protection for their auto industry.

All advanced economies like South Africa have programmes depending upon their local industrial dynamics. Pakistan is, and must continue to support its local auto-vendor industry. All developing countries, which have substituted local content scheme, have adopted a similar tariff-based system, either through notifications or provisions in the Customs Act. The implementation procedures may differ but the objective remains the same, like, protection to local auto-vendor industry subject to certain development criterion.

It is important to emphasise that tariff plays an important role in the development of the auto sector and all developing or newly developed countries use tariff protection as an effective tool for growth of auto industry. India has uniform rate of customs duty at 100 percent irrespective of engine capacity of imported cars. Additionally, there is levy of central excise duty of 24 percent on cars with a capacity not exceeding 1500cc, while CED for cars exceeding engine capacity of 1500cc is 24 percent plus Rs 20, 000 per unit. Thailand has a duty of 80 percent plus excise duty. New Zealand and Australia followed the World Bank-sponsored programme, under which Customs Duty on import of cars gradually reduced from 55 percent in 1984 to 15 percent in 2001 - spread over a period of 17 years. This resulted in closure of manufacturing facilities of Toyota, Mazda, Mitsubishi, Honda and Nissan in New Zealand in 1998. In Australia, the presence is of assembly operations based on kits imported from Japan and ASEAN region to cut freight cost on transport of cars in CBU condition.

It is also imperative to realise that owing to a long gestation period for the investment in auto sector to start giving returns and that vendor’s capacity development is time-taking and investment can only take place once there is an element of certainty and predictability. The Auto Industry Development Programme (AIDP), duly approved by the Economic Coordination Committee (ECC) of the Cabinet, laid down a five-year tariff programme for the auto sector to provide a predictable and stable tariff environment and consistence of policies. The tariff was to be reduced by 5.0 percent on all cars above 1000cc starting from 2009-10 in addition to achieving indiginisation of engine and transmission parts. This was deferred by the government for one year. However, this was not implemented by the Federal Board of Revenue in 2010-11, although the MoIP had recommended its implementation; and again through a summary for the ECC recommended reduction in import duties on cars by 10 percent, which was deferred by the ECC.

MoIP accordingly supported the tariff reduction on CBU by 10 percent across-the-board in Phase 1, followed by gradual reduction up to a maximum 20 percent across-the-board reduction in the existing tariffs for cars of different capacities.

MoIP also supported upward revision of tariffs on parts and components that were required to be indiginised by the year 2010-11, in accordance with the AIDP.

It is also important to highlight that tariff rates for smaller cars were kept lower compared to the cars of higher capacity with the objective that persons having more capacity to pay should pay more. Uniform tariff for all cars irrespective of their engine capacity, as suggested in Draft PC report, may not have notable impact on smaller cars as the price gap between local and imported cars is quite substantial. However, the prices of cars of higher capacity 1500cc and above would certainly come down, which affectively means a benefit to effluent class only, while no substantive benefit to the consumers belonging to lower income strata of society.

Source : dailytimes.com.pk