Pak Suzuki MD says $460m investment hinges on duty cut

He seeks similar tax benefits to those offered by govt to new players

ISLAMABAD: Pak Suzuki Motor Company (PSMC) has linked its $460 million investment in a new Greenfield project with a steep cut in import duties, as the company puts more pressure on the government after failing to win concessions in the auto policy.

PSMC Managing Director Hirofumi Nagao sought similar tax benefits that the government had given to new entrants in a meeting with Finance Minister Ishaq Dar, according to officials of the Ministry of Finance.



They said the meeting took place on Monday in which the company’s management linked its $460 million investment plan with reduction in duties. If the government accepts the company’s demand, it will have to revise the auto policy that the Economic Coordination Committee approved about nine months ago.

Any such revision may discourage the new entrants due to abrupt changes in policies under pressure from stakeholders.

Hirofumi discussed his company’s plan for future investment in Pakistan, according to a statement released by the finance ministry. It added the MD of Pak Suzuki Motor said his company was ready to invest $460 million in Pakistan to set up a second plant.

After meeting formalities, the new project would be completed within a period of two years and may start production by the end of 2018, he said.

At the new plant, PSMC wants to introduce four new models within five years, including two new models by 2018.

However, the company has come forward with the plan to introduce new variants only after Pakistan made it encouraging for new investors to invest in the highly lucrative auto sector. Consumers have long been complaining about the monopolistic behaviour of the three existing car assemblers.

PSMC is the largest vehicle assembler and specialises in small and medium-sized cars. During July-September 2016, the company’s after-tax profit stood at Rs1.87 billion against Rs4.3 billion in the same quarter of last year.



After introduction of the new policy, French automobile manufacturer Renault has decided to start assembling cars in Pakistan, a move that is expected to break the monopoly of existing industry players besides providing a chance to the consumers to buy better-quality vehicles at comparatively lower prices.

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% duty. For existing investors, the duty is 30%.

Similarly, localised parts can be imported by the new entrants at 25% duty for five years compared to the current 50%. For existing players, the duty on import of localised parts is 45%.

In the new policy, the government has also changed the definition of new investor to deny certain benefits to the existing auto players. The Greenfield project 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 MD of Pak Suzuki Motor demanded that these benefits should also be extended to the existing players for at least two years, said sources in the company.

However, in March this year, Board of Investment Chairman Miftah Ismail had told The Express Tribune, “The existing three car manufacturers will not be entitled to the benefits that are being offered to the new investors.”

He said the policy was aimed at enhancing consumer welfare and boosting competition besides attracting new players.

The finance minister asked the PSMC managing director to submit a complete plan with all details to process the request in accordance with the prescribed formalities, rules and procedures, according to the finance ministry statement.

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

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