The Federal Bureau of Revenue (FBR) has given a clean chit to Morris Garages (MG) Motors based on its initial investigation. However, taking into account media reports, the case has been forwarded to the Post Clearance Audit department for further investigation.
Javed Afridi – the owner of Haier Group and the Pakistan Super League (PSL) franchise Peshawar Zalmi – told The Correspondent that their competitive price has become the main reason behind “a campaign to malign the company.”
FBR clarification
The Federal Board of Revenue (FBR) on Wednesday said that while MG Motors’ “declared value and the selling price of the vehicle is not suggestive of under-invoicing,” the matter has been referred to the Directorate General of Post Clearance Audit department for an “in-depth analysis and report.”
The document by the FBR clarifies rumours circulating in sections of the media during the past week. They alleged that Javed Afridi – the Khyber-Pakhtunkhwa based businessman behind the import venture – is being investigated for under-invoicing during the import of over 400 MG GS Model complete built units (CBU) from Shanghai, China.
These rumours started circulating just as Javed Afridi’s PSL franchise was about to kick off a new season of the cricket tournament.
Javed Afridi responds
Talking to The Correspondent, Javed Afridi claimed that “instead of trying to create fair competition, the Pakistani auto industry is trying to blackmail us.”
He added that he knows about the inquiry, but has personally received no notice.
When asked if there was any truth to the allegations, Javed Afridi said: “The allegations don’t make sense. I have imported the 400 vehicles for about Rs 2 billion, and they claim that from this, I have defrauded Rs 1 billion. How is that possible? As a businessman, this is my first-time importing vehicles; why would I under-invoice in a venture I have started for the first time, and done so very publicly?”
“My only fault is that I am a good negotiator,” he added.
“We were bringing cheaper vehicles to the country and looking to break the 30-year old monopoly of the Pakistan Automotive Manufacturers Association (PAMA). We are aiming to revolutionise the auto industry – such reactions were expected.”
When asked to clarify who is targeting him, Afridi said, “I will tell you the names of the individuals behind this later, but we all know where these allegations are coming from.”
PAMA alleges fraud
The Pakistan Automotive Manufacturers Association (PAMA) has been consistently raising questions in the media, asking why MG Motors is paying the full 123.77% customs duties despite getting a 50% subsidy on each unit and importing 400 vehicles. PAMA asked why other were importers were paying between 200% to 300% customs duties on small cars like Toyota Vitz while MG Motors is importing above 1400cc SUVs. They also questioned why was MG Motors allowed to import 400 cars when under the auto policy 2016-21 a company is allowed to import only 100 vehicles.
An official from one of Pakistan’s established automakers said, “It could be a big scam, evading billions of rupees in taxes and customs duty on the import of vehicles.”
A glittering launch
On the first of January, MG Motors’ official launch ceremony took place in Islamabad in a high-powered event; it was attended by luminaries such as Prime Minister Imran Khan, the Minister of Industry and Development Hammad Azhar, and the Minister of State Shehryar Afridi. It seemed Javed Afridi had all the right parties in his corner, while MG was making the all the right noise in the news.
But a month down the line, the launch wasn’t going as smoothly as expected.
On Sunday Javed Afridi tweeted, “For decades, Pakistani automobile consumers have been exploited by cartels that cornered them with low quality, boring models at exorbitant prices. Plus, buyers had to pay billions of rupees to get delivery of the very vehicles the price of which they had already paid. As new entrants bring in exciting new models at far lower prices, instead of competition, we expect maligning campaigns and baseless rumours. While we know that competition is an unfamiliar phenomenon in Pakistan’s automobile industry, we invite everyone to join in a fair competition to serve Pakistani consumers with a bigger and better variety of vehicles at lower prices.”
While the criticism against Pakistan’s automotive industry has been repeated time and again, the mention of “maligning campaigns and baseless rumours” indicated the launch was beset by resistance.
Intense competition
MG Motors joins Changan, Hyundai, Proton, and Regal Motors in launching new cars in Pakistan during 2020-2021 and shaking up Pakistan’s stagnant auto industry.
The Pakistani car industry is dominated by three large Japanese manufacturers. They started operations in the country with the promise to start local manufacturing in Pakistan, however, decades down the line they remain predominantly car assemblers that import fully built parts and put them together locally.
Pak Suzuki’s famous car FX was launched in the early 80s and then Prime Minister Mohammed Khan Jonejo announced the policy of using small cars for government offices, making FX the perfect candidate. This policy brought windfall profits for the company and helped it to strengthen its’ footing in Pakistan. This policy was later extended to Toyota, and over time it became the standard government vehicle provider.
In the years since a virtual oligopoly has been maintained by the “Big 3”, where car prices rose steadily while features and specifications were cut back compared to the same models in other countries. The menace of “own money” – a practice where dealers charge extra money to deliver already purchased cars to their owners – has become so prevalent that it is now considered a routine part of the purchasing process, and not something illegal that needs to be cracked down on.
In this background, MG Motors’ entry into the market with much fanfare might be a matter of concern for the existing competition. Javed Afridi’s tweet indicates that the competition is heating up.
The last time the Pakistani auto industry witnessed such competition was when local manufacturers stormed the motorcycle market with readily available Chinese technology, which ultimately brought down the prices of motorcycles and allowed people to buy bikes at an affordable price.
Will the new competition provide same benefit for the car buyers?
