KARACHI, July 12: The government's decision to fix the import duty on new 800cc to above 1,800cc cars in dollar terms has rendered import of a new cars unfeasible.
The decision has dashed the car dealers as well as consumers' hopes of bringing completely built up (CBU) under the new rate of duty structure.
On the other hand, assemblers now appear happy over the decision, which is in contrast to the previous decision announced in the budget 2004-2005 of cutting import duties by 25-55 per cent.
The government declared at that time the decision to cut import duty was taken in response to the situation where consumers are made to wait too long before delivery is made and also because they are made to pay high premiums on new cars.
The current decision, however, will force the commercial importers to think twice before deciding to import cars. Market analysts think that the duty in dollar looks a calculated move to discourage import of cars in the country and continue to give full protection to the local car assemblers.
The government, which is least bothered about the consumers grievances, has again left the prospective car buyers at the mercy of assemblers and to rely on locally made cars, commented an active observer of car trade.
However, the Saturday's duty fixation news has given a flip to the share prices of auto assemblers. Share price of Pak Suzuki rose to Rs122.95 on Monday from Rs114.40 followed by rise of Rs 6.95 of Indus Motors to Rs100.05 from Rs93.10. Share of Honda Atlas surged by Rs4.90 to Rs72 from Rs67.10 while share price of Dewan Motors closed at Rs26.55 from Rs24.70, up by Rs1.85.
Analyst at Invest Cap and Securities, Khalid Iqbal Siddiqui said that import duty at the rate of 50 per cent on 800cc (as announced in the budget) would have ranged between Rs140,000- Rs160,000 including other taxes. However, as per new fixed structure, the duty at the rate of $4,000 on 800cc car comes to Rs232,000.
He said the decision to fix duty at dollar value was only aimed at controlling under-invoicing and the move has inadvertently provided some relief to the local assemblers.
When the import duty structure was revised for cars in 2004- 2005 budget, it was being assessed that premiums on newly assembled cars would come down and imported cars may eat some market share of local assemblers.
However, with this measure, Khalid said that premiums on local cars may remain unchanged and local car makers may not lose any market share to imported cars. He said the Central Board of Revenue (CBR) was likely to come out with a clarification on the notification in near future.
Car dealers now appear unsatisfied at the new duty rate fixation. "Import of new cars becomes unfeasible," a car dealer said. He said for instance if a 800cc car is priced at $3,000 in a foreign country and is brought here at the rate of fixed duty of $4000 (including import duty, sales tax, capital value tax and with holding tax), then the landed price will touch Rs450,000. In contrast, the locally assembled 800cc car is available at Rs350,000 then what is the benefit for the prospective car buyers.
Giving another example, he said if a 1,000cc imported car was brought here, it would cost Rs520,000 after paying $5000 fixed duty. The locally assembled car of same engine capacity is available at Rs550,000 which means that there would be a competition between imported and locally assembled car.
A leading assembler said that the industry feels satisfied over the fixation of fixed duty on CBU cars which would curb the menace of under invoicing. "We were only afraid of under invoicing and not with the duty slab. The government has rightfully taken a decision to eliminate under invoicing practice," he said.
Car analysts said that the fixation of duty from $4000 to $27,000 on 800cc to above 1,800cc cars has created many doubts as to which country has been picked up as a role model in the fixation of duty.
They said that cars, made in Korea, Japan, Malaysia, Taiwan, China, etc., vary in prices. As per new Customs General Order (CGO), cars, irrespective of factory price variation and quality in every country would be cleared at the same duty rate.
Duties should have been fixed on cars keeping in view of country specification, they added. Many analysts think that the CGO is basically aimed at providing full protection to the car makers as chances now seem bleak for any car imports under the new order.