In April 2021, the government of Pakistan announced a cut in import duties on cars in an effort to provide relief to consumers and promote the automobile industry. The reduction in duties was implemented through a Statutory Regulatory Order (SRO), which decreased the duty on the import of cars with engine capacities between 1000cc and 2000cc from 15% to 10%.
The move was aimed at providing some relief to consumers who have been hit hard by rising car prices due to a number of factors including the devaluation of the Pakistani rupee, high inflation, and supply chain disruptions caused by the COVID-19 pandemic. The elimination of custom duty rates on imported cars in Pakistan will make imported cars more affordable for consumers, as well as create more competition in the local automobile market.
It is worth noting that the reduction in regulatory duties on imported cars in Pakistan applies only to imported vehicles, and not to locally manufactured ones. The Pakistani government has been taking steps to promote the domestic automobile industry, which has been struggling due to a number of factors, including a lack of investment and outdated technology. The government has also introduced a number of incentives to attract foreign automakers to set up manufacturing plants in Pakistan.
Cut on Import Duty on Cars in Pakistan: A Landmark Initiative
The Pakistani government appears to have removed custom duty rates on imported cars up to 1800cc. It bears noting that the government imposed a 100% regulatory duty on these cars in August 2022. In addition, the import tariff in Pakistan was to remain in effect until February 2023; however, the government extended the deadline to March 31, 2023. Regulatory duty will still be charged on vehicles with engines larger than 1800cc, but it will now only be 70% instead of 100%.
The government’s policy to restrict imports by imposing high taxes did not provide the expected effects, but it had a negative impact on the business sector countrywide, leading to the decision to remove the tax.
The Tariff Policy Board declined to prolong the validity of the two Statutory Regulatory Orders (SRO), which were used to impose duties, on March 31.
With all regulatory duties eliminated, consumers of used cars up to the 1800 cc category will be much relieved. In addition to other taxes, the new cars in this category will continue to be subject to a 15% regulatory duty. Due to the SROs’ expiration, the regulatory duty rates on mobile phones have also been cut in half for all categories.
The decreased taxes would also benefit the 500 to 700 imported vehicles of various engine sizes that are currently stranded at the ports since foreign cash is not readily available.
Used vehicles with engines under 1800 cc won’t be subject to regulatory requirements, but new vehicles with engines over 1800 cc will, at very low rates, leading to a huge drop in price. The extra customs fees have also been eliminated for these vehicles.
Currency Erosion Pushes Local Car Prices
While the devaluation of the rupee has had a significant impact on prices of different commodities, including basic food items, it has also adversely affected the local car industry. Due to insufficient manufacturing and substandard quality of locally assembles cars, people are forced to import used cars. However, the current economic crisis has had a significant impact on car buyers. The benefits of lower rates will somewhat be countered by currency depreciation.
Impact of Cut on Regulatory Duties on Cars in Pakistan
The impact of cut on regulatory duties on cars in Pakistan would depend on various factors, including the extent of the cut, the types of cars affected, and the overall economic and political climate in the country. Here are some possible effects:
Lower car prices: One immediate impact of cutting regulatory duties on cars would be a reduction in their prices. This would make cars more affordable for consumers, potentially leading to an increase in car sales and an expansion of the automobile market in Pakistan.
Increased competition: With lower prices, domestic car manufacturers would face increased competition from foreign brands, which could lead to better quality and more diverse offerings for consumers. However, this could also put pressure on local manufacturers to improve their products and compete on a global scale.
Revenue loss for the government: Regulatory duties on cars are an important source of revenue for the government. A reduction in these duties would result in a revenue loss for the government, which could affect its ability to fund public services and development projects.
Job creation: An expansion of the automobile market could lead to job creation in various sectors, including manufacturing, sales, and servicing. This could have a positive impact on the economy and contribute to reducing unemployment.
Environmental impact: The type of cars affected by the cut in regulatory duties would also have an impact on the environment. If the cut applies to hybrid or electric cars, this could encourage their adoption, which would lead to a reduction in greenhouse gas emissions and air pollution.