Existing carmakers unlikely to win tax benefits

FBR opposes similar incentives to existing players as considered for new entrants

ISLAMABAD:

The existing car assemblers may not get similar tax benefits that the government wants to offer to new investors for attracting a European brand after tax authorities have again opposed the move due to poor performance.

The resistance to give preferential treatment to the existing car assemblers grows as they are blamed for selling low-quality vehicles to consumers at high prices.

A meeting to discuss the tax incentives, which would be extended under the new automobile policy, was held on Tuesday with Finance and Revenue Minister Ishaq Dar in the chair. Board of Investment Chairman Miftah Ismail and Federal Board of Revenue Chairman Nisar Muhammad also attended the meeting.



The definition of new investor and the duty structure came under discussion.

The Ministry of Industries has already forwarded a summary to the Economic Coordination Committee (ECC) after the Khawaja Asif committee ended its deliberations. However, the FBR opposed more incentives to the existing players.

Dar called the meeting of stakeholders to know about the FBR’s position amid reports that the existing investors may get almost similar incentives that the government wants to give to the new players.

“The purpose of introducing a European brand in Pakistan will be achieved,” said an official who attended the meeting. The government desires that Fiat, Volkswagen or Audi should establish its footprints in Pakistan, as the country has a huge market but the consumers are served only by the existing players for almost three decades.

Without getting preferential treatment, no new foreign manufacturer can establish its plant in Pakistan due to a strong network of the existing assemblers.

The Ministry of Industries and Production tabled a revised automotive development policy for approval of the ECC in the last meeting, but Dar deferred a decision until the next meeting.

The summary of automobile policy revealed that the government had again offered similar tax incentives to the existing assemblers in a deceptive manner.

During deliberations, the Khawaja Asif committee proposed to delete the Category C that offered the same tax benefits to the existing players.



The committee also agreed that definition of the Category A that offers incentives to the new manufacturers should be slightly amended and the word “new brand” should be added to make sure that the existing players did not get the tax benefits.

However, contrary to the understanding reached, the Ministry of Industry’s summary also offered tax concessions 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.”

It has now been decided that words “new make” will be inserted in the definition to deny tax benefits to the existing players. However, the words “new brand” and “new investor” are again missing.

FBR’s stance

Against the proposal of applying single tax rates to the localised and non-localised car parts, the FBR wants two separate rates for both the categories. It also opposes any additional benefit to the existing players.



The FBR did not agree to the proposal of reducing the tax rate to 25% for non-localised parts of completely knocked down (CKD) units from 32.5% and 35% for localised parts of CKD units from 50%. Instead, it has proposed a gradual reduction that will still be higher than the rates proposed by the Engineering Development Board.

For completely built units (CBUs), the tax rates are proposed to be kept unchanged.

Published in The Express Tribune, March 16^th, 2016.

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