Reconditioned car sales take a beating over duty complexity

Reconditioned cars make up 85 percent of the vehicles in Bangladesh. 

For the last two years, import of such vehicles have continued to slide down due to the complex duty structure in the country, despite having a large demand in this emerging economy. 

According to the Bangladesh Reconditioned Vehicles Importers and Dealers Association (BARVIDA), reconditioned car imports in Bangladesh dropped around 45 percent in the previous fiscal year. 

In the first five months of the current fiscal year, imports dropped another 31 percent. 

"If the present situation continues, it could severely impact the sector and cause the government to lose a large chunk of revenue," said BARVIDA President Abdul Haque at a press conference in Dhaka on Saturday, organised to discuss the reconditioned car trade.

From 1980, Bangladesh began importing reconditioned cars, jeeps, station wagons, microbuses, vans, pick-up trucks, coasters, minibuses and trucks from Japan. These imported vehicles became very popular in the country due to their affordable price, durability and suitability. 

Bangladeshi businessmen usually import five-year-old vehicles as reconditioned units. There are around 1,000 businessmen involved in this trade, and more than Tk20,000 crore is invested in the sector. 

Around 24,000 vehicles were imported in the fiscal year 2017-18.

Stating that a change in the duty structure caused the import of these vehicles to alarmingly drop since last year, the BARVIDA president said, "The import of reconditioned vehicles has almost halved in the fiscal year 2018-19, dropping to 12,502 units.

"In the first five months of the current fiscal year, a total of 3,434 such vehicles were imported, compared to 5,007 imported in the same period last year. This shows a year-on-year drop of 31 percent."

Abdul Haque added, "The discriminatory customs valuation system for imposing duty on reconditioned cars is a major issue in this sector. The Custom House uses the Yellow Book price of reconditioned cars imported from Japan to impose duty."

The National Board of Revenue (NBR) reduced the maximum depreciation facility on the import of five-year-old reconditioned vehicles from 45 percent to 35 percent in FY2018-19.

The Yellow Book price is the international yardstick for car prices issued by the Japan Auto Appraisal Institute, which is an agency of Japan's Ministry of Economy, Trade and Industry. 

Stating an example, Abdul Haque said, "Suppose, a trader imports a five-year-old car from Japan at a cost of Tk9.5 lakh. The duty on the car should be Tk20.14 lakh. However, customs officials will calculate the duty based on the Yellow Book price of Tk13.86 lakh.

"This will cause the duty to go up to Tk29.28 lakh. Due to the high duty being imposed on reconditioned cars, people are reluctant to buy them."

Abdul Haque demanded that the authorities impose duty on reconditioned cars using the price on the invoice as the basis, instead of the Yellow Book price. 

"This move will increase the import of such cars, which in turn will increase the amount of revenue earned by the government in this sector," he said, adding, "A policy and duty structure must be set for importing reconditioned cars.

"Same amount of duty should be imposed on brand new and used cars."

Responding to an allegation made by a corporation in Bangladesh, that reconditioned cars are polluting the environment, BARVIDA said the matter was sorted out long ago.

"All reconditioned cars imported from Japan to Bangladesh are 'Home Model' units. These vehicles are equipped with catalytic converters, which reduces pollution. So, the allegation is baseless," said Abdul Haque.

A catalytic converter is an exhaust emission control device that reduces toxic gases and pollutants in exhaust gas from an internal combustion engine into less-toxic pollutants, by catalysing a redox reaction.

Commenting on the issue of disorder on roads, the BARVIDA president said, "The quality of the BRTC bus service was much better in 1970s, compared to today. The service had discipline and good route management.

"The route management is now non-existent. Around 32 public transports run through the Farmgate route."

Mohammed Shahidul Islam, chairman of HNS Group and general secretary of the BARVIDA, was present at the press conference among many others.