President Hassan Rouhani will present next years’s budget bill to Parliament this week. According to an unnamed source, “In the budget bill, the government has set its income from auto imports at zero. This means that it has decided to extend the car import ban into the coming year,” the Persian-language economic daily Donya-e-Eqtesad reported.
Following US President Donald Trump’s decision in May to pull out of the historic Iran nuclear deal and re-sanction Tehran, the rial tanked and its value plunged to unprecedented lows. In the process foreign currency became a precious commodity and there was not enough of it to continue importing everything, namely expensive foreign cars.
In a move aimed at preserving the exhausted currency reserves, the Rouhani administration introduced drastic measures to curb spending. The first to take the hit was the auto import sector, according to Financial Tribune.
The source further said, “This is not a final decision and the Majlis could demand that the government revise this clause in the budget bill.”
Ratification of the budget bill normally takes months and it is a norm for the government to be required by the MPs to make concessions to get the bill passed.
According to Central Bank of Iran data, the government made 11.3 trillion rials ($96.5 million) from tariffs on auto imports during the first six months of the current fiscal.
According to the Islamic Republic of Iran Customs Administration, 13,642 vehicles worth $395 million entered the country during the first half of the current fiscal. The vehicles had import permits before the ban came into effect.
Imported Car Prices
Over the past few months and following the introduction of the ban, imported cars prices have skyrocketed.
For instance, the Renault Talisman which was sold for 2 billion rials ($17,090) in March currently fetches 5 billion rials ($42,730).
The SUV Koleos, also made by Renault, jumped 60%, with the model being priced at 6 billion rials ($51,280). The model was sold for half that price in spring.
Toyota CH-R which could be bought for 2.5 billion rials ($21,360) in March now comes with a staggering price tag of 5 billion rials ($42,730) and the hybrid electric sedan Prius is sold for 3.8 billion rials ($32,480) up from 1.9 billion rials ($16,230) six months earlier.
What to Expect
Earlier in October, a member of the Majlis Industries Commission Saeed Bastani told reporters that the ban on car imports “is not permanent and will end in the coming months.”
Bastani said the introduction of the ban was an emergency measure aimed at saving foreign currency. “The ban will be lifted by the end of the current fiscal in March 2019. The commission is working on a bill aimed at better managing auto imports.”
Even at the time, Bastani’s comments were viewed with skepticism by businesses who are of the opinion that even if the ban is eased, car importers will face other hurdles since the economic problems that forced the government to ban auto imports in the first place have not been resolved.
One of the major hurdles importers are certain to face is that the value of the rial has plunged to unprecedented lows over the past months. The national currency has lost 70% of its value since April.
On Monday the US dollar was traded at 117,000 rials in Tehran. The greenback was sold for 160,000 to 180,000 rials some weeks ago. In March it hardly fetched 42,000 rials.
Even if firms are permitted to bring vehicles into the country, only a selected few will be able to afford them.
Market observers say that the ban has been introduced as part of measures to tackle the US sanctions and in anticipation of dwindling currency reserves, with the government earmarking foreign currency for basic not luxury goods.
The administration in summer prohibited imports of 1,339 items, including cars, categorized as non-essential with equivalents made inside the country. In addition to cars, the import of ambulances, tractors, refrigerators and freezers, powdered milk, stoves, ovens, tea and coffeemakers, cameras, tissue paper, cosmetics, clothes and musical instruments have also been banned.
However, according to a report in Donya-e-Eqtesad, the goods included in the list accounted for less than 8% or $4.04 billion of total imports in the last fiscal (March 2017-18). In other words, even if the government is successful in achieving its declared goal, the foreign currency saved through such import restrictions would, at best, be insignificant.
All things considered, it is highly unlikely that the Rouhani administration will ease the ban for a whole set of reasons. One key factor is that public discontent with the economic performance of the government is rising and there are more important issues at hand than importing expensive cars for the tiny minority.