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Misuse of Luxury Car Import in Pakistan

Although the government is striving hard to collect more and more taxes by expanding the tax net, it is being cheated out of billions of rupees in duty under a scam involving misuse of the facility of duty-free import of luxury vehicles by some foreign diplomats, representatives of international non-governmental organizations and armed forces personnel of a few countries, according to report published in Dawn.

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The Federal Board of Revenue (FBR) has taken up the matter with the Ministry of Foreign Affairs (MoFA), asking it to write a letter to all foreign embassies and international NGOs to ascertain their criteria for importing luxury vehicles for diplomats and other foreign nationals, who are exempt from paying duty while importing vehicles for their use in Pakistan.

Through a letter, FBR chairman Shabbar Zaidi has informed MoFA of reports that the facility of duty-free import of vehicles is being “misused” by certain embassies or diplomatic missions by importing more vehicles than they actually require. The ministry has been urged to revisit the existing regime for duty-free import of vehicles by embassies, diplomatic missions and dignitaries.

According to the sources, the method of evading billions in duty is that vehicles are imported by diplomats, representatives of international NGOs or military personnel/attaché of different countries, but the actual owners of the vehicles are said to be Pakistanis.

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As foreign diplomats, representatives of international NGOs and armed forces personnel of various countries are exempt from paying import duty, the vehicles they import carry diplomatic registration number plates for three years. As import duty is not levied on vehicles that are three years old or more, these vehicles are transferred in the name of its actual owner (a Pakistani) after that period.

For instance, the price of a Lexus SUV is Rs 10 million. If a Pakistani imports it, he/she will be required to pay an import duty of Rs 30m. But this amount can be saved if a person who is exempt from paying import duty imports it. In the process, the importer (foreign diplomat/military attaché) gains a monetary benefit and the actual owner (a Pakistani) gets the vehicle at a price that is far lower than its market price. The market price of Lexus SUV is over Rs 40m but under the scam it is purchased by the Pakistani owner for around Rs 15-20m only.

According to senior officials of the vehicle registration authority of Islamabad, the scam has been growing since Sept 11, 2001, when the government allowed diplomats to use covered registration number plates (starting with the alphabets QL, QM, and QN) due to security reasons. Now cars are imported by foreign diplomats are misused by Pakistani owners who drive them with covered number plates. According to the sources, in some cases diplomats issue “fake appointment letters” claiming that the Pakistanis owning the cars are drivers of the embassy in question.

Luxury vehicles that are being imported under the scam include Lamborghini, Chevy, Hummers, Nissan GTRs (r35), Rolls Royce, Lexus, Bentley, Porche and BMW. According to an FBR official:

“Two yellow duty-free Lamborghinis are being used in Faisalabad and Karachi.

The official of the local vehicle registration authority said some 12 to 15 vehicles (imported by non-diplomats) are registered with the Islamabad Vehicle Registration Authority in a month, which means 180 vehicles a year. However, the number of such vehicles registered in Karachi and Quetta is said to be even higher.

According to an estimate, the total loss to the national exchequer under this head could be Rs70 billion per month or Rs 840bn per annum. If the authorities concerned confiscate all such vehicles, the government may collect a huge amount in duty.

Full story: Dawn

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