Auto policy 2016-21: Govt offers duty-free concession to woo new carmakers

Plan is to attract new entrants in industry, adds water and power minister

ISLAMABAD:

Without mincing words, Minister for Water and Power Khawaja Asif - who headed the committee meant to finalise the new auto policy - said the government’s plan is to protect consumer interest by attracting new entrants in the country’s car market.

Asif was addressing a press conference that was arranged to officially convey details of the Automotive Development Policy 2016-21 that was approved by the Economic Coordination Committee (ECC) on Friday, clearing months of speculation over the government’s vision for the auto sector.



The policy incentivises new entrants and those manufacturers who have stopped car production, while existing players have been virtually penalised for their, what the official circles called, lack of innovation, competitiveness and high prices.

Asif was accompanied by Board of Investment (BoI) Chairman Miftah Ismail, who was also a member of the auto policy committee, Secretary Industries Arif Azeem and Chief Executive Officer (CEO) Engineering Development Board (EDB) Tariq Ijaz Chaudhry.

Asif said the purpose of the policy is to create healthy competition in the auto sector currently dominated by three Japanese brands.

“The ECC had taken up the issue of consumers’ exploitation by existing car assemblers two years ago and formed a committee to formulate the new auto policy to attract new entrants,” said Asif. “While the motorcycle industry has tapped market potential, local car assemblers have failed despite enjoying several incentives like duty exemption. These assemblers have not even turned into manufacturers due to their failure in completing the deletion programme.”

It must be noted that commercial import of vehicles is banned in Pakistan, while those looking to bring in foreign-made cars are subjected to high rates of customs and regulatory duties along with sales tax as local assemblers continue to lament the influx of imports.

Asif said that local car assemblers have been using obsolete technology for the last 20-35 years and incentives offered to them have not been passed on to the consumers.

“Existing players have failed to employ international-level technology and consumers are forced to drive less-efficient vehicles,” he said, adding that Pakistan could not even export cars due to the use of low standard engine technology compared to that being used in the rest of the world.

“The purpose of the new policy is to help bring new entrants and revive the plants that were shut down.

“There are issues of ABS (anti-lock braking system) and use of Euro-fuel by local car assemblers,” he said, obviously mentioning some of the variants that do not have basic safety features but sell in droves due to lack of competition.

“The world has moved on to Euro 6, while we are stuck with Euro-2 fuel.”

A new dawn

Asif, however, said that the situation would now change. “Consumers would dictate the market due to the new auto policy,” he said.

Meanwhile, BoI chief Ismail said the entry of new players would lead to a cut in car prices, adding that the policy also promised 2-2.5 per cent reduction in parts for local car assemblers to enable them to compete in the market.



He said that government had given incentives to new entrants who would pay 10% customs duty on non-localised parts for five years against the prevailing 32.5%. For existing investors, the duty has been slashed by 2.5% to 30% from the new fiscal year 2016-17. Similarly, localised parts can be imported by 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.

Chaudhary, the EDB CEO, said the government would ensure the use of Euro-4 fuel in new cars and an automobile institute would also be set up for training purposes.

Published in The Express Tribune, March 22^nd, 2016.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.