Auto policy approved, door wide open for new entrant

Published: March 19, 2016
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Existing three car assemblers will not be entitled to the concessions. PHOTO: REUTERS

Existing three car assemblers will not be entitled to the concessions. PHOTO: REUTERS

ISLAMABAD: 

In the hope of attracting a European carmaker, the government on Friday approved a new automobile policy, which offers tax incentives to new entrants to help them establish manufacturing units and compete effectively with the three well-entrenched assemblers.

After a hiatus of almost two and a half years, the Economic Coordination Committee (ECC) of the cabinet gave the go-ahead to the Automotive Development Policy 2016-21, according to an announcement made by the Ministry of Finance.

Automotive policy: Exclusive incentives for new players blocked

However, the government did not change its policy for used car imports, leaving consumers with a narrow range of choice until new brands of good quality are produced in the domestic market.

The Federal Board of Revenue had proposed that import of up to five-year-old used cars should be allowed compared to the current three-year ceiling. It also called for opening imports for commercial purposes.

The automotive policy will be formally launched on Monday. Industries and Production Minister Ghulam Murtaza Jatoi did not attend the ECC meeting.

“The existing three car manufacturers will not be entitled to the benefits that are being offered to the new investors,” said Miftah Ismail, Chairman of the Board of Investment, while talking to The Express Tribune.

The policy was aimed at enhancing consumer welfare and boosting competition besides attracting new players, he added.

Ismail said greater localisation of auto parts had been ensured in the policy and in case the new entrants were unable to achieve the targets, they would be penalised.

Contrary to the demand of Volkswagen, the definition of medium knocked-down unit has been removed from the policy. The government desires that Fiat, Audi or Volkswagen should establish its plant in the country.

Existing carmakers unlikely to win tax benefits

The definition of new investor has again been changed to deny certain benefits to the existing auto players.

Greenfield is now defined as “installation of new and independent automotive assembly and manufacturing facilities by an investor for the production of vehicles of make not already being manufactured in Pakistan.”

The government has included the word ‘make’ and deleted the word ‘assembled’. It has defined ‘make’ as “any vehicle of whatever variant produced by the same manufacturer.”

Incentives

The government has allowed one-off duty-free import of plant and machinery for setting up an assembly and manufacturing facility. It has also permitted import of 100 vehicles of the same variants in the form of completely built units (CBUs) at 50% of the prevailing duty for test marketing after the groundbreaking of the project.

A major incentive for the new investors is the reduced 10% customs duty on non-localised parts for five years against the prevailing 32.5%. For existing investors, the duty will be slashed by 2.5% to 30% from the new fiscal year 2016-17.

Similarly, localised parts can be imported by the new entrants at 25% duty compared to the current 50% for five years. For existing players, the duty on import of localised parts will be brought down to 45% from the new fiscal year, beginning July.

Auto industry enjoys unequaled run of success

In the CBU category, customs duty on cars up to 1,800cc engine capacity has been reduced by 10% for two years – 2017-18 and 2018-19. This will be applicable to the existing players as well and will encourage reduction in car prices.

A single duty rate will be applied to the localised and non-localised parts after five years of the new policy. The present duty structure will continue for seven years for the new investors.

The Board of Investment will provide a single point of contact for all new investors. They will be required to submit a detailed business plan and relevant documents to the Engineering Development Board (EDB) for assessment.

The Ministry of Industries, on recommendation of the EDB, will approve the new investor under the relevant category.

Sick unit revival

The non-localised parts can be imported at 10% and localised parts at 25% duty for three years for the revival of a sick unit.

Published in The Express Tribune, March 19th, 2016.

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Reader Comments (16)

  • Imran
    Mar 19, 2016 - 10:17AM

    Thats great work.
    Finaly we can drive a new car. Which we can afford.
    I will wait for my new audi now. HeheRecommend

  • MK
    Mar 19, 2016 - 10:52AM

    Too little too late. The teams from VW, Fiat, etc already left disappointed in 2014. They do not trust us anymore. Recommend

  • Fahad
    Mar 19, 2016 - 12:12PM

    Bye Bye Mehran!!Recommend

  • Ahsan
    Mar 19, 2016 - 2:44PM

    Good decision although it has come 4 years later as last policy expired in 2012. This policy must also be modified to include ban on obsolete models and force assemblers (esp Paksuzuki) to replace models on time. Airbags, Abs and Crash test certification must be made compulsory.

    We refuse to accept 1970s-1980s model being dumped here.(Paksuzuki lineup)Recommend

  • Malik Saab
    Mar 19, 2016 - 2:48PM

    It is my request to KP and Punjab government to invite car companies in their regions. At present 90 percent manufacturing of cars is concentrated in Karachi. KP produces no cars and Punjab has only one Honda assemble plant. Car assembly can create thousands of jobs. The provincial governments can recruit thousands by setting up plants in their underdeveloped regions. Recommend

  • Gulzeb
    Mar 19, 2016 - 3:57PM

    Should i wait to buy a new car.Recommend

  • Mar 19, 2016 - 4:43PM

    TL;DR all I need to know is does this in anyway change Suzuki Mehran to finally get a new shape and encorporate new technology? Or is it going to be same rolling windows, ugly interior at the price sum of 800,000 and above PKR till 2021?Recommend

  • Logitech
    Mar 19, 2016 - 6:48PM

    Let’s see how Honda Atlas, Pak Suzuki and Toyota Indus try to torpedo this initiative that is beneficial to the people of Pakistan but detrimental to them.Recommend

  • Rumormonger
    Mar 19, 2016 - 7:36PM

    One day after the announcement of this policy, the largest manufacturer posted an ad on the front page of the newspapers telling the people what “own” money does to car industry. They are trying to disown the own. This means they are fearing competition and hopefully will mend their ways now.Recommend

  • nadeem
    Mar 19, 2016 - 11:22PM

    I am amazed that policy makers did not succumb to the coercion of the three incumbents, who have a collective lock on the market. Please VW, Audi, ( even Skoda! ), please come to PakistanRecommend

  • Woz Ahmed
    Mar 19, 2016 - 11:29PM

    Why this focus on European cars ?

    China has a huge car industry and with CPEC we should expect many more Chinese in our land, so a product familiar to them makes sense.Recommend

  • Ahad khan
    Mar 20, 2016 - 1:04AM

    Great, finally we get around to improving the sector.
    I am surprised VW is flexing muscles.
    Some respite from the emissions case will do it some good. Recommend

  • PakPower
    Mar 20, 2016 - 10:17AM

    @Woz Ahmed:
    Standards mate. The Chinese will come in time but first we need to inject some quality into our auto market so that both existing and subsequent manufacturers can up their game to stay viable.Recommend

  • Ch. K. A. Nye
    Mar 20, 2016 - 1:49PM

    You want new entrants to ‘make’ cars here. With what? The same substandard materials and parts that wouldn’t pass quality control in any civilised country… Get real… We’re not going to see any Western manufacturer coming here. At best we will see the Chinese. Recommend

  • Mohammad
    Mar 20, 2016 - 4:30PM

    just went to Pak and someone told me you need to wait 3 months to get Toyota Corolla after paying the upfront cash!!

    I was about to get fainted.. !!

    My bro bought a Suzuki Swift and was over the moon, I told him once I will be in Pak I am going to drive it but to my surprise, when I tried my feet was unable to fit on clutch and break so I gave up.

    Did you know that the Honda Civic model currently available in Pakistan is 2013 Manufactured vehicle? But you pay the same or more price as of 2016 worldwide.??Recommend

  • Irfan
    Mar 21, 2016 - 10:23AM

    @Woz Ahmed:
    because China produces third class quality stuff for Pakistan. I will be more happy with a European CarRecommend

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