Auto sector imports PC proposes duty rationalisation

Karachi: The Planning Commission has proposed cut in tariff on import of motorcycles to 15-20 per cent in the budget 2011-12 and a further cut to a maximum of 10 per cent in next phase. However, the ministry of industries has opposed the move.

The commission has also suggested immediate tariff cut to a maximum and uniform rate of 25 per cent for import for all motor cars.

Meanwhile, the Federal Board of Revenue (FBR) believes that a five-year tariff plan for auto sector is already in place since 2006 but its implementation has been freezed for the last two years.

The FBR and ministry of industry had already given their feedback on the PC report on “Pakistan trade policies: Future directions.”

On motorcycle, the ministry does not support tariff reduction on bikes in completely built-up (CBU) condition so as to ensure growth in local industry, besides availability of bikes at affordable price to the lower income strata of the society. The PC report suggested that better performance and reduction in prices have denied the benefit of pricing in accordance with tariff somewhere near the landed cost of imported equivalent.

The ministry said this makes no justification rather supports the government policy of tariff protection to induce indigenisation and growth of local industry.

Currently, a 70cc bike is subject to customs duty at the rate of 65 per cent, while the consumer price is Rs 55,000 compared to Rs 40,000 for a locally made bike.

In case import tariff on CBU bike is reduced to 15 per cent as suggested in the PC’s report the imported Chinese bike will be available at Rs 36,000, which would mean a severe blow to the local industry, which is exporting bike to the third world countries.

The ministry cited example of India, which manufactures about 8.5 million bikes, has a duty of 100 per cent plus 16 per cent central excise duty.

China is a big bike producer but has a PC proposes duty rationalisation duty rate of 45 per cent.

In cars, the industry ministry said that Japan, India, Thailand, Malaysia, Europe had resorted to tariff protection for their auto industry.

India has a uniform rate of customs duty at 100 per cent irrespective of engine capacity, besides 24 per cent central excise duty on cars with a capacity not exceeding 1,500cc, while CED for cars exceeding engine capacity of 1,500cc is 24 per cent
plus Rs20,000 per unit.

The Auto Industry Development Programme laid down a five year tariff plan under which tariff was to be reduced by five per cent on all cars above 1,000cc starting from 2009-10.

The plan was deferred by the government for one year. However, this was not implemented by the FBR in 2010-11 although the ministry had recommended in a summary reduction in duties by 10 per cent but it was deferred by the ECC.

The ministry accordingly supports tariff reduction on CBU by 10 per cent in the first phase followed by gradual reduction up to maximum of 20 per cent in the existing tariff for cars of different capacities.

The ministry also supports upward revision of tariff on the import of parts and components that were required to be indigenised by the year 2010-11.

A uniform tariff for all cars irrespective of engine capacity as suggested by the commission may not have a notable impact on smaller cars as the price gap between local and imported cars is quite substantial. However, the price of 1,500cc and above cars would come down to benefit to the affluent class only.

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