The government has hinted to raise the duty on the import of cars to 50%, instead of completely banning the importation as it was suggested before. Bear in mind that this tax is applicable on completely built units (CBU) only, and not CKD (completely knocked down) kits that are being imported and later assembled here in Pakistan. Also, the new RD (regulatory duty) will be applied to all types of vehicles; gas-driven cars, hybrid cars, and certain fully electric vehicles as well.
As for the EVs, the proposed higher tariff will only be applicable to those EVs that come with battery packs over 50-KWH (Source: The News). This will basically hit the high-end EVs like Audi e-tron and Porsches that you have been seeing on the roads in Pakistan lately. These EVs are being imported at the current rate of 10% customs duty. Basically the government wants these vehicles to be assembled locally rather than being imported in CBU form.
The government is frantically trying to cut down the import bill by taking such measures. In the first four months of the current fiscal year, the current account deficit (CAD) crossed 5 billion dollars. The government fears that if this trend of spending continues, CAD can touch 16 billion dollars. But considering Pakistan is aiming to meet the terms set by the International Monetary Fund, we cannot fully ban imports as one of the requirements set by the IMF. Instead, with this increased duty, the government wants to discourage imports since the products, cars in this instance, will become so expensive after all the taxes that people will just drop the idea of buying them.
But it has to be said, that the flip side of this increased tax is an increase in ‘own money’ culture here in pakistan. It is fair to say that there is more demand for cars than there is production. The delivery timelines for most vehicles can easily reach up to 6 months. Some high-demand models are being delivered after as much as 9 months. Suzuki has halted the booking of Alto since there is so much demand compared to its production, and the company having difficulty honouring the current bookings before taking new orders.
It also must be mentioned that previously when the government allowed the mass import of used and second-hand vehicles, it was an attempt to reign in the local automobile industry. Even at that time the delivery times were horrendous and own money was a norm. So instead of cleaning the mess and bringing the auto sector in order, the government chose an easier way and let the imported vehicles invade the local automotive market. It did give the consumers relief and made local car manufacturers sort out their practices, but it all happened at the expense of hemorrhaging foreign exchange reserves. It was a short time fix and it definitely hurt the economy in the longer run.
But whatever the case, it is the consumer that has to bear the brunt of increased costs; whether it’s in the form of higher taxes or own money. The sticker prices of locally produced cars are already eye watering. The top of the line Honda Civic 1.5 RS is being sold for more than Rs5 million. These short-term fixes have always had adverse effects in the longer run. But how will the market react to this increased RD, only time will tell.
The proposed increase in import tariff will be presented to the Tariff Policy Board, and then the PM, in case there is a positive response from concerned ministries and departments.