24 August, 2014 / Shawwal 27, 1435

The existence of grey market would act as a parallel market of automobile vehicles in the country and would create an unfair competition for the formal sector. — File Photo

ISLAMABAD: In what appears to be a first formal reaction against the amnesty scheme, the Competition Commission of Pakistan has asked the Ministry of Finance to withdraw the notification that allows legalising of smuggled vehicles on nominal duty and taxes.

The Commission in a detailed policy note sent on Thursday asked the ministry and Federal Board of Revenue (FBR) to rescind the notification SRO172 issued on March 5, which the Commission believed would only promote anti-businesses and competition practices in the country.

The policy note, a copy of which is available with Dawn, clearly mentioned that the issuance of the SRO was a cause of concern for the Commission and would only benefit owners of smuggled vehicles against those who import it through legal channels.

The reaction from the Commission came at a time when the amnesty scheme was believed to have been designed in a way to extend facilitation to elites especially the political elites to register their luxury vehicles on nominal duty and taxes.

The Commission pointed towards a series of irregularities in the amnesty schemes.

The allowable age limit for import of a car is three years under the latest SRO 1441 (I)/2012 issued on Dec 12, 2012 by the Ministry of Commerce while there is no age limit for the smuggled/ non-duty paid motor vehicles under the amnesty scheme.

The commission is of the view that due to amnesty scheme, dissimilar conditions for imports under allowable age limits have been applied to importers of motor vehicles through the regular normal channels in contrast to persons clearing their smuggled/non-duty paid vehicles under the SRO172.

As a matter of fact, the persons who have violated the law by not paying the taxes and duties have been incentivised to import motor vehicles of their choice without imposition of any allowable age restriction on them.

In addition, the policy under the amnesty is discriminatory against the persons importing motor vehicles through normal regular channels to the extent that the facility of duty and tax concessions under SRO172 has not been extended to the motor vehicles imported in violation of ‘Import Policy Order’ via normal channels through a custom station.

On the other hand, the smuggled/non-duty paid motor vehicles anywhere in Pakistan but outside the premises of custom stations have been allowed to avail the facility of duty and tax concessions under the amnesty scheme SRO. The importers who have opted to import via normal channels but violated ‘Import Policy Order’ have, in fact, been discriminated in contrast to the persons possessing smuggled/non-duty paid vehicles anywhere in Pakistan.

For three-year old cars imported through regular channel, an importer could avail maximum depreciation allowance up to 48 per cent.

Contrary to this, the maximum depreciation in value for assessment of duty for smuggled vehicles is up to 72 pc.

If depreciation criteria is taken into account with no time limit set for claiming depreciation under the amnesty scheme, undue advantage has been provided to owners of the smuggled/non duty paid motor vehicles in contrast to importers under normal channels in the form of extra depreciation reward of even up to 100pc subject to the condition of a nominal minimum payment for duties and taxes, such as $500 and Rs100,000.

Through this facility, discriminatory treatment has been meted out to the importer of vehicles through normal channels and dissimilar conditions have been applied to them in contrast to owners of smuggled/non duty paid motor vehicles.

The commission further said that the scheme is also likely to affect the production decisions of relevant stakeholders’ ie automobile assemblers/manufacturers.

The automobile industry in Pakistan is inward looking and they plan their production decisions on the domestic demand forecasts.

The market forecasts may change due to the import surge of older motor vehicles, which may adversely affect the competitive environment for automobile sector as some of the vehicles cleared under the amnesty scheme act as a substitute for vehicles assembled in the country.

It further stated that the amnesty scheme for smuggled vehicles may result in creation of grey market for automobile vehicles in the country on sustained basis.

The existence of grey market would act as a parallel market of automobile vehicles in the country and would create an unfair competition for the formal sector.

Similarly, smuggled/non-duty paid motor vehicles envisaged to be cleared under the scheme would not be subject to several tests, such as roadworthiness and emission control tests as no criteria for allowable age limit has been set for clearance of smuggled/non-duty paid motor vehicles under the subject SRO.

On the other hand, vehicles imported under the regular import channels are required to undergo roadworthiness test.

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