Is this the right time to buy a car in Pakistan?

Even after almost two months, the Pakistani car dealers look disappointed regarding the potential reduction in car prices following the expiration of the 100 percent regulatory duty (RD) on vehicle imports.

Pakistan had permitted the import of used cars no older than three years, along with vans, Jeeps, and SUVs up to five years older, under schemes like transfer of residence, gift, and baggage. These vehicles were sold in the local market after fulfilling duty and tax obligations.

However, last year, the Pakistani government imposed a ban on the import of luxury and non-essential goods, including cars, to curb the outflow of dollars by imposing Regulatory Duty (RD). The notification enforcing regulatory and additional customs duties (ACDs) expired on March 31, 2023.

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The expiration of these duties sparked hopes among buyers for a significant reduction in prices for imported cars up to 1,800cc.

However, Pakistani car dealers hold divergent opinions regarding price reductions, with several attributing the hurdle to the unfavorable exchange rate between the dollar and the Pakistani rupee. The Pakistani currency has depreciated by nearly 30 percent since the imposition of RD last year.

Hajji Muhammad Shahzad, chairman of the All Pakistan Motor Dealers’ Association (APMDA), disagreed on the likelihood of price reductions due to the current rupee-dollar parity. He cited an example where the purchasing price of a vehicle, which was $5,000 eight months ago, which meant around 1 Million Rupees, has now gone up to almost 1.5 Million Rupees due to the skyrocketing dollar value as compared to the rupee.

While Shahzad acknowledged that vehicle prices should decrease, he emphasized that the rupee-dollar parity remained the primary obstacle to substantial price cuts. He categorically ruled out any significant price reductions in response to the removal of the regulatory duty. According to him, there will be no huge price deductions as anticipated by the public.

Another factor of little to no price decrease is the dollar duty on imported vehicles. According to Kamran Tabani, a motor dealer in Karachi, “Countries that import vehicles often set their own currencies for the payment of duties rather than the dollar. The Dollar duty of Pakistan will continue to create havoc even if RD or even the car prices go down.” He urges the government to set duties according to the Pakistani Rupee “if the government wants to see some business in this otherwise deserted automobile market.

Currently the duty of imported cars up to 800cc is US$ 4,800 (Rs. 1,370,693), up to 1000cc is US$6,000(1,713,366), up to 1300cc is US$13,200(Rs. 3,769,405), up to 1500cc is US$18,590(Rs. 5,308,579), and the list goes on.

Regularity Duty

Pakistan has been grappling with an economic crisis characterized by depleting foreign exchange reserves, a weakening currency, and historically high inflation. Pakistani consumers voiced concerns about the weak price-fixing and enforcement mechanisms, which have allowed “the local assemblers mafia” to flourish within the country, openly challenging the authority of the state, by increasing the prices of cars without any reason. “The basic 660cc Pakistan assembled car does not even offer airbags, let alone features like collision control, traction control, lane assist, hill assist, amid others,” says Shahzad deeming these cars extremely dangerous.

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However, Senior Business Reporter Anjum Wahab expresses concern over the detrimental impact of increased imports on the local automotive industry, highlighting the potential risk of unemployment for thousands of Pakistanis directly involved in the industry, as well as those in related sectors such as plastic, steel, and rubber industries.

Offering a potential solution to counter these unfavorable conditions, Shahzad suggests that allowing the import of cars and other vehicles up to seven years old could help alleviate the problem. In Japan, the prices of such vehicles range from $1500 to $2500, which could significantly impact the local automobile market. By imposing the prescribed dollar duty on imported cars, the government could foster healthy competition between imported vehicles and locally assembled ones. Additionally, Shahzad proposes exploring the option of local car manufacturing as a possible means of addressing the issue.

What do you believe the government should do to facilitate car trade in the country? Share your thoughts in the comments section below.

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