In order to protect their sectors, used car importers have requested the government to commercialize the import of used cars in Pakistan. Such a move by the government will not only benefit car importers but also the consumers and the government. The government will be able to collect more revenue in the form of import duty and the consumers will be exposed to a wide array of choices. If we look at the current structure of importing a used car in Pakistan, there are three ways in which we can import used car: Transfer of Residence (TR), Gift and Baggage. The mere three ways in which people can import a used car puts a lid on the number of used cars that can be imported in Pakistan.
Under the baggage law allowing people to bring a used car back to Pakistan from a foreign trip, a person can only bring one used car in any one year. So this is a very restrictive policy and cannot be used very frequently. To make the matters worse, the government passed a law making used car importers to pay the import duty in dollars. The fluctuating rupee against dollar can jack up the import duty, in terms of rupee value, even in few days. A comparison of
the total value of used car imports in the last two fiscal years show a decrease from $250 million to $150 million, a sharp decrease of $100 million.
Under all of the three schemes through which used cars can be imported, the import is same and it increases with the engine size. Most of the used cars being imported currently are between 660cc to 1000cc in engine capacity. In the case of used cars, the import duty is lower than what you will face if you import a brand new car. The government discourages the import of used cars as it damages the local industry which is creating jobs in the economy.
With new car manufacturers entering the auto sector of Pakistan, used car importers are fearing for their position in the sector. The entry of new car manufacturers will make the sector more efficient and we will get cars with better built quality and more advanced features. We have already seen the effect of increased competition when Pak Suzuki stopped producing Suzuki Mehran and launched Suzuki Alto, equipped with better features.
The Negative Aspect
The worsening exchange rate position and feeble trade deficit of Pakistan has prompted the IMF and the World Bank to caution Pakistan against its growing imports as opposed to its exports. If we import more and more of unnecessary items from abroad, our exchange rate position will be more precarious and can lead us to unprecedented levels of inflation that our general public is not ready to face. The commercialization of the import of used cars will be one of the contributing factors to worsening exchange rate position and eventual high inflation.
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