Jordan Times
Monday, August 23, 1999
Reduction on customs on cars: Blessing for
prospective buyers, curse for second-hand car dealers
By Mohammad Ben Hussein
AMMAN — Jordanians seeking to buy new cars on Sunday rejoiced over a government decision to cut customs duties on cars by half, but dealers in second hand vehicles were dismayed to see their assets depreciate.
Saturday's surprise tax reduction, cutting by half custom duty levied on cars, will cost the treasury JD37 million in lost revenue.
However, what has been given by one hand is taken by the other, economists concluded on Sunday.
By increasing the price of gasoline by 20 fils per litre and doubling the registration and licensing fees on new motor vehicles, the government hopes to compensate for most of the lost revenue.
“The decision will not be a financial burden on the government because it doubled the registration fees and hiked gasoline prices,” Fahed Fanek, the country's leading commentator on economic issues said yesterday.
In 1989 after the collapse of the dinar, the government enforced heavy customs duties on cars to discourage imports and keep a good reserve of foreign currency.
Sunday's decision was praised by economists and car dealers as being courageous and expected a big boom in car trade.
“Cars are no more luxurious items; they are a necessity of life,” according to Ali Abul Ragheb, a member of the Parliament and former minister of trade.
The reduction in customs will make cars more accessible for larger segments of society, he said.
While some people are counting their money and preparing to buy, showroom owners said they are the biggest losers since retail prices have already plunged by between 30-35 per cent.
Bankers said the overnight drop in cars' stock value could cause problems with borrowers who took loans to buy cars. “The cars' collaterals have dropped, which might encourage borrowers to default on their loans,” said one banker.
The car dealers warned the country could become a dumping place for the rest of the world after the government allowed seven-year-old cars to be traded in Jordan lifting the previous ceiling of five years.
“The free trade zone will witness a dramatic increase in car trade,” said a car agent.
He called on the government to enforce “some sort of standard on the import of cars to protect the country against the import of junk vehicles.”
Economists also warned of an increase in car population which would lead to more traffic congestion and accidents.
Meanwhile, procedures at the Customs Department on Sunday were halted.
Nathmi Abdullah, head of the Customs Department, told the Jordan Times that services will resume on Monday after the decision is published in the official gazette.
Trade liberalisation and tax reform, along with laws to protect intellectual property rights, are essential to qualify Jordan for the membership of the World Trade Organisation (WTO) and the Euro-Mediterranean partnership.
IMF officials say an overhaul of the tax regime along with dismantling prohibitive customs tariffs, a main source of government revenue, are essential for the success of the Kingdom's structural reform programme.