ISLAMABAD: The auto sector has demanded that the government implement measures to curb the rising imports of used cars, which are not only undermining local production but also instrumental in transferring forex through the grey channel.

In its budget proposals to the Federal Board of Revenue (FBR), the auto sector said that during 2022-23, the industry imported parts amounting to $1.57 billion and all the payments were made through the banking channel.

It added that payments to import used cars were made through the ‘grey channel’ for transferring foreign exchange.

Cheaper used car imports hurting local industry

Indus Motor Company Chief Executive Ali Asghar Jamali said that 13 brands currently produce over 40 models in the country, and their combined capacity is 500,000 units annually.

However, the influx of imported used cars continues to pose sustainability challenges for the local industry.

“The automotive industry, including vendors, provides up to 5 million direct and indirect jobs, whereas the number of jobs provided by the importers of used cars was negligible,” Mr Jamali added.

The auto sector has also questioned the misuse of gift schemes to import second-hand vehicles, which end up in the showrooms of commercial importers.

Talking to Dawn Mr Jamali said, “We have even asked the government to allow commercial imports of used cars, so that we too will become importers and shut down the local auto industry.”

He said the Additional Customs Duty (ACD) on used car was reduced from 35 per cent to 7pc while the regulatory duty (RD) was reversed from 100pc to 15pc for up to 1800cc and to 70pc for vehicles above 1800cc on April 1, 2023.

On the other hand, the sales tax was increased from 18pc to 25pc on locally assembled vehicles above 1400cc. Other duties and taxes were also increased on the local industry.

In its budget proposal, the auto industry has demanded equalising the RD and ACD between locally assembled vehicles and used cars.

The industry has demanded that the government reduce the depreciation rate from 1-2pc to 0.5pc, as mentioned in import policy, custom general order number 14/2005, and SRO 577(I)/2005.

It has highlighted that from 2020 to 2023, used car imports were around 10pc compared to local production. However, due to the reduction in RD and ACD in 2024, this figure sharply increased to approximately 28pc.

The auto sector has also suggested that the government should ensure that used vehicles are imported only for the use of overseas Pakistani families and not for commercial sales.

Published in Dawn, May 29th, 2024