ISLAMABAD, March 1: The government on Tuesday extended depreciation limits by an additional 10 per cent for assessment of duty and taxes on the imported used cars, a move that could lower prices of the cars but deferred an incentive package encouraging investment in the automobile sector.

The Economic Coordination Committee (ECC) meeting under Finance Minister Dr Hafeez Shaikh enhanced the depreciation limit to 60 per cent from existing 50 per cent. However, the decision was not made public after the meeting due to the fear of a backlash from the local auto-manufacturers, a source privy to the meeting told Dawn on Tuesday.

A statement issued after the meeting said only that the ECC has approved summaries of the commerce ministry seeking rationalisation of car prices in domestic market.

As per law, the government allows one per cent depreciation per month in value of used cars for assessment of duty. Though the government extended the age limit of used cars to 60 months (5 years) in December but even still an importer could avail a maximum of 50 per cent depreciation because of the upper capping.

The new law envisages assessment of duty to the maximum of 40 per cent of the original price of the five year old imported cars.

However, it is clear that the government fears a reaction from the local auto manufacturers who are unhappy with the decision to import used cars.

The ECC postponed two other summaries of the commerce ministry in Tuesday’s meeting, which dealt with a concession package for new investors in automobile sector and extension of five years facility to other vehicles instead of current cars.

Pakistan Motor Dealers Association chairman H M Shahzad said the enhancement in the depreciation limit could cause a dip in prices of used cars in local market for end consumers.

He estimated a difference in the range of Rs150, 000 to Rs200, 000 in prices of used cars following extension in the age limit to five years followed by enhancement in the depreciation value.

To encourage new players in the auto manufacturing, the commerce ministry had proposed to the ECC to approve a package seeking reduction in duty to 16.25 per cent from 32.5 per cent on import of components, parts and CKD kits not manufactured locally, and 25 per cent duty instead of 50 per cent in case of components manufactured locally.

This special package was proposed for a period of three years to attract investment in the auto sector.

The ECC asked the commerce ministry to prepare another detailed study on the proposed package to identify the investors and its impact on car prices in domestic market.

Similar remarks were made on the other summary of the ministry seeking extension in age limit of vehicles including trucks, buses etc for overseas Pakistanis.

According to the official statement, the ECC asked ministry of commerce to give a detailed presentation on the matter of rationalising of prices of locally manufactured cars.

To encourage export of Halal food to Netherlands, the finance division had sought approval of equity investment in Netherlands remittances of $15 million. The investment will help to diversify the export base by exporting Halal foods for which Engro Corporation has been allowed to remit an amount of $15 million for setting up a company in Netherlands.

The ECC also approved issuance of government’s guarantee of Rs1.5 billion for Textile City Limited near Port Qasim.