Automotive policy: Exclusive incentives for new players blocked

ECC puts off decision, issues directives for more consultation at ministerial level

ISLAMABAD:

The government’s plan to bring a European car manufacturer for breaking the monopoly of existing car assemblers seems to be fizzling out as a nexus of assemblers and bureaucrats has again blocked preferential incentives for new foreign players.

Without getting preferential treatment, no new foreign manufacturer - Volkswagen or Audi - can establish footprints in Pakistan due to a strong network of the three existing assemblers, according to government officials seeking introduction of a new brand in Pakistan.



The Ministry of Industries and Production on Monday tabled a revised automotive development policy for approval of the Economic Coordination Committee (ECC), again offering the existing assemblers similar tax incentives that the government wants to give to new investors.

However, a last minute intervention by Water and Power Minister Khawaja Asif stopped the ECC from approving the summary. Asif pointed out that approval of the policy should be deferred as Board of Investment Chairman Miftah Ismail was not present in the meeting.

Ismail and Asif were members of the committee that drafted the revised policy. However, the Ministry of Industry’s summary was different from what had been agreed at the committee level, said a top government functionary, prompting Asif to call for putting off a decision.

ECC Chairman Finance Minister Ishaq Dar agreed to Asif’s objection and deferred approval of the policy. “The ECC directed that more consultations on the auto policy at the inter-ministerial level be carried out,” said the finance ministry.

It was the second time in the last seven months that the ECC could not take the decision.

Trick

In October 2013, the ECC constituted a committee to propose the new automobile policy. However, even after two and a half years of work, the document still carries a bonanza of huge benefits for the existing players. In August 2015, the ECC also deferred the policy approval and asked Khawaja Asif’s committee to go back to the drawing board.

During deliberations,the committee proposed to delete Category C that offered same tax benefits to the existing players. It also agreed that the definition of Category A that offers incentives to the new manufacturers should be slightly revised and  words “new brand” should be added to make sure that the existing players did not get the tax benefits.

However, contrary to the understanding reached at Khawaja Asif committee level, the Ministry of Industry’s summary implicitly offered similar benefits to the existing players.  Its revised definition of Greenfield investment reads, “Greenfield is defined as the construction of new and independent automotive assembly and manufacturing facilities by an investor for the production of vehicles, not already being manufactured/ assembled in Pakistan”.

By this definition, the assembly of Camry Toyota will be treated as new investment, which will be excluded if the word “new brand” is inserted in the Greenfield definition, a senior government functionary told The Express Tribune.

In its new summary, the Ministry of Industries also excluded the word “new” from the Greenfield definition, making sure that the existing players also get similar benefits, said the official.

The delay in approval of the new policy is also going to the benefit of the existing assemblers.

“We will make sure that the new policy is approved within this month, which will also offer a level playing field to the investors”, said BoI Chairman Miftah Ismail, while talking to The Express Tribune. He said the new policy would also support the establishment of new foreign brands in Pakistan.



However, the new investment policy under the Ministry of Industries seems to be a nuisance for new investors. Germany’s biggest and the world’s second largest automobile manufacturer in terms of market share, Volkswagen wants to do business in Pakistan, provided a competitive business environment is available.

The FBR has also opposed extending any incentive to existing players. “The existing manufacturers have availed concessions for two decades and extending further benefits to them will be of no use,” said the FBR. It also questioned the technological advancements by the existing assemblers.

Published in The Express Tribune, March 8^th, 2016.

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