New Rules for Age Limit in Importing Japanese Used Cars in Pakistan

Ministry of Commerce has raised the import ‘Age limit’ of used cars from Japan, Korea, USA, Singapore and other countries to 5 years under personal baggage, gift and transfer schemes. Though it is good for buyers, as 5-year old cars will be much cheaper than 3-year old ones, yet it is a wicked message for domestic car assemblers especially Japan and Korea for their consistent ignorance to state’s demand to reduce prices for local car brands.
In a meeting on December, 8, 2010, held in Commerce Ministry under the chairmanship of Additional Secretary Shahid Rahim Shaikh, the decision was taken by Finance Minister Abdul Hafeez Shaikh. Economic Co-ordination Committee (ECC) directed the Commerce Ministry to immediately call a meeting and issue a Statuary Regulation order (SRO).
However, the SRO was kept confidential, and made public on December 9th. Ministry of Commerce proposed increment in age limit of Korean, American, Singaporean or Japanese used cars to be imported under personal baggage scheme, gift or transfer of residence schemes. Now buyers can have another cheap option to buy a used car from Singapore, Japan, Korea or USA that is 5-year old. Further they recommended that depreciation should be increased to 2%, to 24 months, as it was the position till December 31, 2008. However, this was not approved by the committee.

Nevertheless, there is no change in depreciation and it will remain 2% and the finalized decision by ECC is still asking buyers to wait.
Thus relaxation on importing Japanese used vehicles from Japan, Singapore or other parts of the world will provide healthy competition in the local market and this will be assumed that local assemblers will reduce the prices, otherwise face the fall in sales volume। At least the sales volume due to overseas Pakistanis will definitely be affected.
Facilitating Korean, American, Singaporean and Japanese used cars sales, export, and import will not only generate revenue for the pooled money but would also put off the cars smuggling in Balochistan and Khyber Pakhtunkhwa. It is also speculated that this decision will boost up the import of used cars to approximately 20,000 units in a year 2011.
The ministry is of the considered opinion that this lowered volume of used cars imported from Japan, Singapore, Korea and other countries had badly crashed the supply of cars in domestic market. Local assemblers, who kept increasing the prices and have Rs. 14 billion to 16 billion of buyers’ money at any given time, need that pressure.
Now importers could avail depreciation in value of used cars which will equal to 50% for assessment of duty. At present, the depreciation is only 1% per month, which means only 36% in value. In current scenario any importer could avail a maximum of 50% depreciation in value of car for assessment of duty.
Ministry of Industry and Production submitted a summary to ECC not less than 6 times signifying extension in the import of used cars from Singapore, Japan, Korea and other countries. Every time it either wasn’t considered for discussion or postponed for the next sitting. At last ECC meeting held in one and half months have, however, caused a serious concern in Japan Embassy in Islamabad.
On the other hand, it is quite important to remember that Japan’s Ambassador to Pakistan. Chihiro Atsumi jumped into action following media reports on possible extension to make decision-makers bother about any such decision. Fostering used cars sale and import will discourage Japan’s investment in Pakistan auto sector. In a recently held meeting, he forcefully cleared this point in front of top government officials and Commerce and Finance Secretary.
According to Chihiro Atsumi, used cars sales and import would discourage Japan to invest in Pakistan including the leader auto assemblers; Toyota, Suzuki, and Honda may roll back their expansion and production plans. Due to the slowdown in economic growth, all these companies are now hurting as they had planned for 6% or above growth rate; therefore, they have spent in expansion and local deletion. The basic purpose why government committed to restricting the import of 3 years used cars was to allow assemblers to devise a long-term plan and assure investors to earn a return on investment and at the same time hold up local vending industry by transferring technology as committed in the deletion programmes. However, after this decision, Japanese cars assemblers perceive that Pakistan is going back on a firm commitment.
Auto Parts Vendors and makers are upset after this Decision.
Aamir Allawala, the chairman of Pakistan Association of Automotive Parts and Accessories Manufactures said that above 1,500 vendors and manufacturers of parts were employing over 200,000 people to produce quality parts at prices that are lower than world rates.
Due to economic slump, the auto parts manufacturers have been on the threshold of closure and shrunk because of ever increasing cost of production and car production by up to 60%.
Shaikh Mohammad Iqbal, GM Marketing, Balochistan Wheels claimed that Pakistan will again become junkyard for used cars as the buyers who purchased used imported cars are still crying for problems of getting parts and maintenance for cars they are using.
All Pakistan Motor Dealers Association still claimed that only two proposals i.e. increasing age limit to 5 years and depreciations to 2% will have no effect on the sale of local assemblers.
In 2005-06 when government allowed import of 10-year old used cars import and sales from Japan, Singapore, Korea and other countries, consequently 72,000 used cars were imported under transfer, gift and personal baggage scheme. But after the strong representation from local assemblers, the government reduced age limit to 5 years in 2006-07 when imports fell to only 42,000 units. In 2007-08 the age limit was further slashed to only 3 years and hence closed the chapter of import by imposing 50% regulatory duty coupled with 12.5% increase in custom duty and cut in depreciation from 2 to 1%.
Even though the policy is meant for overseas Pakistanis, the used cars dealers would leap in to import American, Korean, Singaporean and Japanese used cars through exporters by using passport details of overseas Pakistanis.
A senior custom official reported on condition of anonymity that “This is an implementation issue not a policy”. He also claimed that it is nearly impossible to ensure and stop overseas Pakistanis, particularly labor class to stop facilitating these importers in duty reduction.
Japanese used cars exporter will have a lot out of it as Pakistan has the major sales volume from Japanese brands like Toyota, Suzuki and Honda. Used cars from Singapore and Korea may have alternative brand leverage. Let’s see what would happened in couple of months as the policies in Pakistan changes more faster than the automobile companies changes their model.