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.
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.
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.”
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.
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.