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KARACHI, June 14: The government's decision to cut import duty on completely built up (CBU) cars by 25-55 per cent has created a lot of confusion as the government has not announced any policy guideline on makes and models of new cars.
It is also unclear whether the government would allow commercial importers to bring cars, which were not manufactured in Pakistan or it would give the green signal to import of cars that are locally assembled.
Finance Minister Shaukat Aziz remained silent on this issue on June 12 and in post-budget press conference. On the other hand, auto assemblers, who were shocked by the proposed duty cut, were planning to meet the prime minister and other ministers concerned this week to explain the negative effects of the decision on new investment and the industry.
However, the decision has, in first instance, depressed the premiums on newly assembled cars as well as the share prices of local assemblers by five per cent. Share of Pak Suzuki fell to Rs123.40 on Monday from Rs129.85 per share followed by decline in Indus Motors share to Rs97.90 from Rs103.05.
Share of Atlas Honda and Dewan Motors also fell to Rs178 and Rs30.65 from Rs180 and Rs32.25 per share respectively. Market sources said that the decline in share prices has nothing to do with the decline of 166.91 points in the KSE-100 share index due to imposition of 0.1 per cent capital value tax on purchase of shares.
General Secretary, All Karachi Motor Dealers Association, Masroor Ahmed Siddiqui said that the finance minister had not given any indication about the makes and models of cars and country of origin.
He said importers, after the clear direction from the government on makes and models, would calculate whether import of car would be feasible. Besides, parts availability of new CBU cars is must for the consumers' confidence.
Meanwhile, market sources said the government might not allow those CBU cars (new) which were already being manufactured in Pakistan by the Japanese and Korean assemblers.
There is a possibility to give import permission of European and Korean made new cars. The government is likely to clear this confusion in the new trade policy 2004-2005 announcement this month.
However, the chairman, All Pakistan Motor Dealers Association (APMDA), HM Shahzad said that the import of new cars would definitely be feasible. After duty cut, the cumulative duty cut impact on import of 800cc cars comes to 82.45 from 113 per cent.
The cumulative rate of duty on 1,000cc and 1,300cc cars plunges to 92 and 118 per cent from 121 and 156 per cent. On 1,600cc and 1,800cc cars, the cumulative duty impact now reduces to 121 and 136 per cent from 192 and 195 per cent, he added.
He said that local assemblers had been holding back public money of Rs60 billion on the booking of 75,000 cars coupled with late delivery schedules and high prices which compelled the government to take a decision in favour of prospective buyers.
He claimed that the decision had caused decline in premium rate on locally assembled cars. The on-rate on Honda Civic and Toyota Corolla had fallen to Rs80,000 from Rs100,000 on Monday followed by decline in premium rate on Suzuki Alto to Rs13,000-14,000 from Rs28,000-30,000.
CAR MAKERS: Pakistan Automotive Manufacturers Association (PAMA) has expressed serious concern over the drastic cut in duty on the import of CBU cars. "The new scale of duty on CBU reduces the protection to local assemblers to 15 per cent, which is wholly inadequate for country's small and struggling engineering industry," PAMA said.
The new duty structure will bring to a halt the huge investment planned in the expansion and modernisation of the engineering industry. The localisation of parts which now stands at 50 per cent or more will come to a standstill or may even fall back, the association said after an emergency meeting held in Karachi, which was attended by chief executives of car companies.
Meanwhile, an assembler said that the four car makers had planned to invest Rs8 billion to expand the capacity of their plants to achieve the production targets. Sale of cars in recent times has doubled. It was 42,341 units in 2001-2002, rising to 62,769 in 2002-2003 and by the end of current fiscal year, it would get close to 100,000 units.
Vice-chairman, Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM), Mehdi Ali Rizvi paints a doomsday scenario for the auto makers and the vending industries following the cut in import duty on CBU cars.
He said the decision would put on hold the booking of new cars by the prospective buyers and ultimately the local car assemblers would have to cut their production volumes.
The government has maintained the current 35 per cent import duty on completely knocked down (CKD) kits in the 2004-2005 budget. PAAPAM had also urged the government to retain the duty at 35 per cent because the CKD forms the basis of import substitution which eventually means that the more CKD import is allowed the less local industry will grow.
He said PAAPAM had suggested for maintaining the CKD duty but it had also called upon the government not to cut import duty on CBU cars as it would take away the initiative of new assembly plants that are planned to be set up in future.
Mehdi said that CBU imports would make a damaging impact on car as well as vending industry besides seriously affecting the car volumes and future investment plans.
Research Head, Invest Capital and Securities, Mohammad Sohail thinks that few consumers may shift to imported cars since they are likely to become cheaper.
With import duty on CKD kits is unchanged, he forecasts some margin erosion for car assemblers if they are compelled to cut prices in order to remain competitive against imports. He said import duty on steel sheets had been reduced in the budget, which would provide some relief in the cost structure.
