Pakistan’s automobile industry is playing a leading role as large scale manufacturing sector of Pakistan that serves as backbone of the economy and has immense potential for growth.Last year, federal government has announced relaxation in the import policy for import of used cars under Transfer of Residence, Gift Scheme and Personal Baggage Scheme. Under this scheme, five years old models can be imported at less custom duties. Moreover, depreciation allowance on these imported used vehicles is also available up to four years.
Such policies of the government strongly affect the businesses so being the student of business education; you are required to evaluate the effects of relaxed import policy regarding import of used cars on local automobile industry (identify at least three (03) effects) and then on economy (identify at least two (02) effects).
EFFECT ON LOCAL AUTOMOBILE COMPANY:
- In general: If import duty reduce then economy will destroy. Because menufacturing unit will close. People purchase imported items on low price and pakistanani goods are not sold mean company closed.
Explanation: The levying of tariffs is often highly politicized. The possibility of increased competition from imported goods can threaten domestic industries. These domestic companies may fire workers or shift production abroad to cut costs, which means higher unemployment and a less happy electorate.
2). A government may levy a tariff on products that it feels could endanger its population. For example, South Korea may place a tariff on imported beef from the United States if it thinks that the goods could be tainted with disease.
3). The use of tariffs to protect infant industries can be seen by the Import Substitution Industrialization (ISI) strategy employed by many developing nations. The government of a developing economy will levy tariffs on imported goods in industries in which it wants to foster growth.
2 EFFECT ON ECONOMY:
- Import duty is a income of Pakistan Govt. When relaxation is made on the import duty. Its mean income of the govt. will automatically decrease.
- Purchasing power of the economy will automatically increase. Because cast will decrease. For example: If imort duty will 20% then cost will be 1,000 but after relation like 10% in import duty. Cost will autiomaticaly decrease like 800.