The News has found that smuggling is done in the open obviously with the connivance of border authorities. Any truck that crosses Pakistan Customs post with goods loaded for Afghanistan or independent tribal regions returns back to Pakistan by changing 8 to 16 old truck tyres with new ones depending on the size of the vehicle. The old tyres are also brought back by these trucks.
The price difference between a smuggled truck tyre and similar imported one is Rs3,000. Smugglers bear an expenditure of around Rs1,000 per tyre that covers traveling cost and bribe they pay for safe entry.
The importers point out that in order to curb smuggling the government a few years ago reduced duty on truck tyres to 5%. At the same time, tyres were not allowed in the Afghan Transit Trade till 2005. This effectively curbed truck tyre smuggling.
As per unit cost of these tyres increased in the global market, they say, the impact of 5% duty also rose. The decline in the value of Pakistani currency further increased compound duties on tyres that included withholding tax, import duty and sales tax on duty paid value.
Lahore Chamber of Commerce and Industry Vice President Shafqat Saeed Piracha, commenting on the issue, says the 5% impact of import duty translates into 29% increase in the original cost of imported truck tyres. Average import price of a truck tyre is Rs8,000 and 29% addition of all government taxes at the import stage raises the cost to Rs10,400, he says, adding the smugglers take advantage of this price differential to marginalise legal importers.
He suggests that the only way out of this impasse is to withdraw import duty on truck tyres while the government should continue to charge sales tax. In this way, he says, the cumulative duty impact on truck tyre would come down by Rs1,000.
As a result, he says, government revenues from tyre imports would increase manifold as the smugglers would have less margin that will make smuggling unattractive.
The News has found that almost 90% of car tyres are also smuggled into the country because the import duty on these tyres is 35% plus sales tax and withholding tax. This duty is said to have been imposed to protect the lone car tyre manufacturer in the country.
Local car tyres are, however, found only on cars assembled in Pakistan. Buyers invariably change these tyres with smuggled ones by selling them at half their company price.
The local manufacturer does not have the capacity to fulfill even 25% car tyre requirement of the country. The duty protection is simply encouraging smuggling.
It has also been found that unlike a decade ago when smuggling of big tractor tyres was not possible the price differential after payment of import duties has made even this possible, though on a limited scale. Tractor tyres are too big to be concealed and certainly find their way into the country in connivance with the authorities.
The high duty of 25% on rear tractor tyres inflates the tyre price exorbitantly as 16% sales tax is charged on duty paid value. A pair of rear tractor tyre now costs Rs26,000.
The importers have appealed to the government to waive duty on tractor tyres as it has withdrawn duties on all agricultural implements. That, they said, would reduce the price of a pair of rear tractor tyres by Rs10,000-12000. (Tire Review/Akron)
