What if vehicle imports do not happen as much as expected..?

Even if vehicle imports are allowed, won't there be a large number of vehicle imports due to high taxes?

Will those who are considering buying vehicles delay it considering that there is room for tax reduction?

If vehicle imports are not as high as expected, will it be impossible to meet state revenue targets?

The above questions have been raised by several people.

Below is the amount of foreign exchange spent on private vehicle imports in recent years in millions of dollars.

2013 - 582.2

2014 - 896.7

2015 - 1359.6

2016 - 794.8

2017 - 772.7

2018 - 1573.5

2019 - 815.7

2020 - 282.9

2021 - 12.8

2022 - 11.7

2023 - 27.7

2024 - 66.2

As can be seen from this data, vehicles worth an average of $1063.3 million per year were imported during the five years 2015-2019 before the import ban. Assuming that the same amount is imported in 2025, an additional $1 billion worth of vehicles will be imported into the country compared to 2024.

Generally, the import price of vehicles increases year by year. Especially after the pandemic, vehicle prices increased significantly at once. Therefore, more dollars are now needed to import the same number of vehicles that were imported before the pandemic.

An even more important point is that the import of vehicles in this way is allowed after about four years. Therefore, those who have been waiting to buy a vehicle for a while have the opportunity to buy vehicles at this time. For these reasons, there is a significant risk that the amount of vehicle imports in 2025 will exceed $ 1 billion (upside risk).

On the other hand, the price of a dollar has increased significantly. Taxes have also increased to some extent. In addition to both of these, the country's money supply has been controlled and demand has been limited. These factors discourage vehicle imports (downside risk). Therefore, there may not be as large a vehicle import as expected.

Since there are both sides, we will only know exactly about the demand after a few months. Until then, should we be more concerned about the risk of a decrease in vehicle imports or the risk of an increase in vehicle imports?

Vehicle imports are necessary to revive and revive the country's economy. Also, it makes it easier to reach the state revenue target. But vehicle imports had to be stopped because the country had a foreign exchange crisis. Although the foreign exchange crisis has been controlled, preserving and further increasing the existing foreign reserves while maintaining a stable dollar value is still a primary goal. The economy cannot be pushed forward by losing the balance of the foreign sector.

The economy can withstand vehicle imports of about $1 billion. But if they exceed that, there may be some pressure on the dollar value. It will turn into inflation through oil prices, electricity tariffs, transportation tariffs, etc. Also, the rupee cost of foreign debt and interest payments will increase, putting pressure on the budget. The more vehicle imports are limited, the less these risks will be.

For the above reasons, the government must first think about the risk of excessive vehicle imports. If such a situation arises, the government may be tempted to increase taxes and control vehicle imports. The Governor of the Central Bank had also said something similar.

But such a problem arises if vehicle imports increase significantly. What happens if vehicle imports are very low instead?

Considering that vehicle imports exceeded $1 billion a year before the economic crisis, there is no reason why vehicle imports of even $500 million should not occur even under the worst-case scenario. If the tax rate is considered to be 300%, it will generate about 450 billion rupees in revenue. That amount is enough to reach the state revenue target.

It is not a good idea to try to increase vehicle imports by reducing taxes and thereby reach the state revenue target. If you want to increase vehicle imports by reducing taxes, you will have to reduce taxes immediately. Even if vehicle imports increase by doing so, in the end, there will not be a big increase in state revenue. Therefore, from a state revenue perspective, the best solution is to keep taxes at the current level.

From a state revenue perspective, allowing the import of used vehicles is a viable solution. However, the circumstances that led to the restriction of the import of used vehicles remain the same. In fact, the country is facing a problem of not having new vehicles in three to four years, not a shortage of vehicles.

After weighing the risks of a decrease and an increase in vehicle imports, I do not see a significant risk of a decrease. Therefore, I do not see a risk of not being able to meet state revenue targets. Considering these factors, there is no reason to reduce vehicle import taxes in the future.

(Economatta)