Auto Dealerships

Lack of investment opportunities in the country has been attracting the automobile dealers to
invest their money in auto sector and they continue to book vehicles before their production
from the factory and earn huge profit in the form of ‘own money’

Typically when you reserve a car for purchase, you put a down payment for it. You can then
receive the car 3-4 months later and pay the remaining amount at that time. This is all well and
good so far.

Pay More, Get Your Car Early

Paying around 150,000 rupees extra will get you the car right then and there, you can drive it
home. Which is an anti-consumer practice to say the least. What they are not allowed to do is
ask for a premium to get the car delivered early. When you think about it, this should not be
possible if we go with their original statement that says that due to increasing demand,
manufacturing a car takes time.

A local newspaper mentioned that some Suzuki dealerships were forcing buyers for lump sum
payment while some of the Toyota dealerships were asking for a down payment as high as
30% of the original cost.

When asked about these practices, a spokesperson from Toyota denied any dealerships asking
for premiums. While the spokesperson from Suzuki replied, ‘… such behavior was observed
earlier at some of our dealerships, so we took the necessary measures, and as a result, our
understanding is that no dealerships are doing that now.’

The major reason behind this is vacuum of investment opportunities, as dealers find no other
place for investment. “They can earn more than 15 percent profit within few months, as they
are charging additional Rs150,000 to Rs250,000 on sale of every new vehicle, apart from the
profit margin given to them from companies.”

Another Perspective
There may be another story going on behind the scenes. A high ranking bureaucrat says that
large numbers of used Japanese cars of around 2-3 years age are exported to Pakistan on a
regular basis. This lets the Japanese car makers sell more cars in their home market of Japan.

The local dealerships are trying to sell these used cars to the customers by saying they will be
delivered to them faster than the new ones, according to the bureaucrat. When asked about
this, both Suzuki and Toyota spokespersons denied existence of such practices.

Advanced Tax Fraud

Bookings of new cars in dealers name has emerged as a source of claiming billions of illegal
advance tax refunds, aside from additional earnings from re-selling cars at a premium.

Intelligence department of the Federal Board of Revenue is investigating cases where dealers
of locally assembled cars have been found claiming advance tax from customers, even though
they had already paid this tax at the time of booking.

Under section 231B of income tax ordinance 2001, every assembler of a motor vehicle will
collect the advance income tax at different rates on the basis of engine capacity at the time of
sale. These rates range between the lowest Rs50, 000 in case of 1301cc to 1600cc commonly
in use, to Rs100, 000 for cars in the range of 1801cc to 2000cc. These rates go up to a
maximum of Rs250, 000 in above 3000cc vehicle.

The same dealers, after collecting the amount from the customer, then went on to claim a
refund from the tax authorities. The customer, on the other hand, ends up having to pay the
advance tax one more time when they go to get their car registered because they do not have
original proof of tax payment made to the dealer.

The initial inquiry conducted by the FBR into the scam reveals that dealers of Toyota cars
themselves booked 46,500 vehicles in the last three years across the country alone. These cars
were then sold to customers on premium along with recovery of advance tax.

Indus Motor Company, the local assembler of Toyota cars, began an awareness campaign
against the menace of “own money” last November, and announced that it had cancelled more
than 1,100 advance bookings by “dodgy corporates” as well as individual customers after
conducting a close examination of the details provided at the time of booking of the car. The
practice of trading in new cars by dealers has been a menace for the auto assemblers as well
as for the customers.

Damage Done

The total amount collected as advance tax, according to the FBR source, ranges between
Rs2bn to a maximum of Rs4bn. The actual amount will be clarified after serving notices to
these dealers, the source said.

The premium ranges between Rs200,000 to Rs500,000 depending on the engine capacity of
cars. The advance tax is also being included in the premium amount, the source said.

According to details from the letters, Karachi and Lahore alone account for 68 per cent of all
the cars booked in dealers names, at 16,442 and 14,997 respectively. The number of cars
booked by dealers in Faisalabad stood at 4121, Multan 3,252, Sargodha 1472, Islamabad 938,
Rawalpindi 914, Gujranwala 969, Quetta 827, Hyderabad 649, Abbottabad 513, Peshawar 446,
Sahiwal 481, Bahawalpur 292 and Sialkot 201.

Consumers are of the view that the menace of late delivery is the industry’s failure to ensure
the consumer’s interest, as the dealers charge own money in the name of the company and
blame goes to the OEMs directly for overcharging. Industry experts said that the government
has tried to stamp out this practice by introducing a tax on the transfer of vehicle registration,
requiring the ID of all buyers to be recorded, and punishing non-tax filers with an additional
withholding tax. These measures have not created a certain effect on dealers mafia, as these
measures have proven to be insufficient since the practice of over-charging continues in full
swing

Chairman Pakistan Automobile Assemblers Dealers Association (PAMADA) Iqbal Shah

suggested that additional registration tax in case of transfer of new car within three months of
purchase can help curb the menace of premiums.

He said industry has taken various steps towards discouraging premiums such as refusing
multiple bookings of vehicles on a single CNIC, displaying vehicle availability information at the
dealership floors and on the company website. “We request the customers to book their
vehicles only at the authorized dealerships and wait for the delivery of their vehicles as per the
delivery date”. He added that with customers’ support, the menace of premiums on car prices
can be eliminated.