ISLAMABAD, Jan 26: The federal cabinet allowed on Wednesday the import of used cars whose age does not exceed five years in an attempt to check the rising prices of locally-manufactured vehicles.
The cabinet had last month endorsed a decision of the Economic Coordination Committee to raise the import ‘age limit’ of used cars to five years from three years, sending a strong message to domestic assemblers that its patience over flouting of its directive to lower prices has limits.
But a notification to that effect was withdrawn before it could be implemented, giving rise to speculations that the government had yielded to pressure from the powerful local manufacturers.
Talking to reporters after the cabinet meeting, Information Minister Qamar Zaman Kaira, however, claimed that Prime Minister Yousuf Raza Gilani had not quashed the cabinet decision. “He (Mr Gilani) just asked the commerce ministry to withhold it (cabinet decision) till a review at the next meeting,” he said.
Mr Kaira also rejected a perception that the government had succumbed to pressure of some cartels, adding that certain issues required broader consensus. “The fact that the cabinet upheld its previous decision after a thorough discussion clearly shows that the government has not bowed down before any pressure group.”
But sources close to the commerce ministry said there was a twist in the tale. According to them, President Asif Zardari intervened in order to get reversed the government’s earlier decision and thereby allow the import of five years old cars.
“No formal summary was sent to the cabinet by the commerce ministry for revising the import ‘age limit’ of used cars to five years from three years,” a well-placed source in the ministry said.
This, he explained, meant that Prime Minister Yousuf Raza Gilani had taken the decision on his own to uphold recommendations on Dec 8 of the Economic Coordinating Committee to allow the import of five years old cars.
But Wednesday’s decision, according to the source, was not that of the prime minister. It was the outcome of a presentation given by the industry ministry to President Zardari, explaining why the age limit of used cars should be raised from three years to five. The source said that after the presentation, the president had taken an initiative that negated the decision earlier taken by Mr Gilani.
The prime minister was of the opinion that imported cars should not be older than three years, rejecting the ECC’s earlier move to allow the import of five years old cars, notified through an SRO issued by the commerce ministry on Dec 8 last year.
However, the notification was withdrawn through another SRO on Dec 30. It restricted the age limit of used cars to three years.
The SRO imposed three conditions — transfer of residence, personal baggage of an expatriate having a stay of more than six months abroad and gifts schemes entitled to the blood relatives in case of more than two years stay abroad. Pakistan Motor Dealers Association chairman H.M. Shahzad told Dawn that the latest decision would not only provide an alternative to people to buy cheaper cars, but it would also yield additional revenue.
He said that 15,000 to 18,000 used cars would be imported under these schemes over the next six months. “Our estimate is that it will raise an additional revenue of up to Rs 13 billion.”
Mr Shahzad said that in the wake of the decision, the Toyota Company had already reduced prices of local cars by a maximum of Rs 40,000. “Other manufacturers will also announce a similar reduction if the prime minister does not reverse the age limit.”
Since 2008, Pakistan Suzuki has jacked up the prices 18 times, followed by Toyota Company (16 times) and Honda (13), eating into the purchasing power of the average buyer.
DEPRECIATION: A commerce ministry source said the ministry had prepared a summary seeking a hike in depreciation from one per cent to two per cent and an increase in the age limit of all kinds of vehicles.
Mr Shahzad sought a similar concession for the import of used cars. Under the law, the government has allowed one per cent depreciation up to 50 per cent in value of cars for assessment of duty. But, according to an official in the ministry of industry, this concession was restricted to 36 per cent. The increase in the age limit was just the removal of an anomaly in the law, he added.
Aside from this anomaly, the official said, the president was informed that import of used cars also provided cheaper alternative to consumers. He said the decision would not have any negative impact on local manufacturers, adding that the local production had witnessed an upward trend in the past even after the increase in import of used cars.
Statistics of the industry ministry showed that 43,000 used cars were imported in 2005-06 and the local production in the same year reached 176,000 units. The import of used cars reduced to 5,000 because of a change in the age limit in 2008-09, but local production also declined to 85,000 units in the same year.
The domestic car production reached 120,000 units in 2009-10, but used import cars remained at 5,000 units during the same period, suggesting no relationship in imports and local production.
A finance ministry official said the fluctuation in local car production was linked with consumers’ purchasing power and increase in mark-up rate, which also discouraged car financing.
As per customs tariff, there is a 50 per cent duty on import of cars of up to 800cc, 55 per cent on 800 to 1,000cc, 60 per cent on 1,000 to 1,500cc, 75 per cent on 1,500 to 1,800cc and 100 per cent on cars exceeding 1800cc, along with regulatory duty of 50 per cent.