Pakistani automakers call for higher taxes on used car imports

ISLAMABAD: The local auto industry has called for government intervention to control the surge in used car imports, which have skyrocketed by over 711 per cent in February 2024 compared to the same period last year.

Indus Motor Company Chief Executive Ali Asghar Jamali told journalists on Thursday that the local auto industry is seeking urgent remedial measures from the government in the upcoming budget to support domestic manufacturers and restore investor confidence.

The industry is requesting an increase in duties and taxes on used cars in the upcoming budget to benefit from the slightly improved economic activity, stable currency, and a likely cut in interest rates.

“Contrary to our expectations of improvement in demand from January 2024 onwards, this year has not brought a positive change for Pakistan’s auto industry due to the heavy import of used cars,” said Jamali.

Local automakers saw a slight improvement of about 28 per cent in their sales in February 2024 compared to the same period last year (7,953 units in February 2024 vs 3,642 in February 2023). However, the import of used cars surged by over 711% (3,213 units vs. 396 units) in February alone, compared to the same period last year.

“If this situation persists, our vendors’ industry will be forced to close down due to this unsustainable business environment, with plant utilization capacity levels between 25 per cent to 30 per cent for the past few months,” Jamali warned. He highlighted that huge investments by vendors to meet the auto industry’s demand are now idle, producing parts for vehicles at approximately 100,000 levels.

The chairman of the Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM) recently noted that the local auto industry has invested about $2.5 billion and contributed around Rs400 billion in taxes in FY2022. The industry also creates about 2.5 million direct and indirect jobs, underscoring its economic significance.

The average monthly import of 3,068 used cars (from July 2023 to April 2024) has rendered local businesses ineffective, leading to potential unemployment and economic loss in terms of taxes. Additionally, illegal financial channels are often used for foreign payments related to used cars, while the local industry adheres to legal means for importing parts, presenting a significant challenge.

Jamali said that the government should ensure that used vehicles are only imported for the personal use of overseas Pakistani families. Imports also hurt the country’s reserves, depreciate the Pakistani currency, and threaten future investments due to economic uncertainty.

Despite these challenges, Toyota’s newly launched Hybrid Electric Vehicle, the Toyota Corolla Cross, has performed satisfactorily in its first quarter. The Corolla Cross has the highest percentage of localized parts in its category, exceeding 50 per cent, he said.

Currently,  Jamali said, 13 brands produce over 40 models locally, with a combined capacity of 500,000 units annually. However, the influx of imported used cars continues to create sustainability challenges for the local auto industry.

To support the local auto industry, the government has been urged to rationalize import taxes on used cars to curb the influx of imported vehicles, revitalize the local market, safeguard the interests of domestic manufacturers, and ensure the sustainability of countless jobs, he said.