Auto sector raises alarm over NEV policy
Experts highlight that this increase in sales tax, enforced by the government and the FBR, prompted auto companies to lower prices, sacrifice profit margins, and devise customer-friendly strategies. Photo: FILE
Local auto manufacturers have raised concerns over the proposed new energy vehicle (NEV) policy, fearing it could pave the way for unrestricted imports of completely built units (CBUs) of vehicles at significantly lower duty and sales tax rates.
They have further warned that this could lead to a loss of market share for local original equipment manufacturers (OEMs), negatively impact parts manufacturers and stifle growth of the auto industry.
Members of the Pakistan Automotive Manufacturers Association (PAMA) have expressed concerns regarding the recently discussed NEV policy and the corresponding policy document. The government plans a subsidy of Rs50,000 for electric two-wheelers and Rs200,000 for three-wheelers.
The State Bank's policy rate has already been reduced from 22% to 15%. The scheme will be launched with Kibor plus 3%. Instalment plan will extend to two years and consumers will pay Rs9,000 per month. PAMA Director General Abdul Waheed Khan, in a letter to the Engineering Development Board (EDB), said that their members are apprehensive of the policy that it may lead to the unrestrained import of CBU of vehicles at significantly lower rates of duty and sales tax.
He said that this could deprive existing OEMs of a substantial market share, adversely affecting parts manufacturers and stunting the growth of the local auto industry. Additionally, permitting the free import of CBUs at substantially reduced duty (25%) and sales tax (10%) rates would undermine current investments and discourage further investment in the auto sector.
This would also frustrate the objectives of successive auto policies the government has been trying to achieve since 2008. The current policy, AIDEP 2021-26, provides a balanced tariff across different types of vehicles, including ICE, HEV/PHEV and EVs.
Therefore, it would be more appropriate to amend the current policy to accommodate the promotion of NEVs, ensuring consistency and fostering investor confidence.
However, if the current policy is still under consideration, "we request the government to take notice of the adverse impacts".
PAMA said that every year, the import of used cars takes away almost 30% of market share. It would not be acceptable for CBU imports, as outlined in the proposed policy, to further erode the market share. This could devastate the local auto industry.
He said that if the policy is to be approved, PAMA had recommended a concurrent change to the used car import policy. Market share should be either taken by used cars or by CBU imports, but not both simultaneously.
It also proposed the complete elimination of used car imports. However, the facility could be retained for overseas Pakistanis to purchase locally produced vehicles. He said that the NEV policy should be restricted to the import of electric and fuel cell vehicles only.
Additionally, the current provisions under SRO 693 for A-max parts should not be subject to 1% duty, even for EVs. PHEVs and HEVs should remain under the AIDEP 2021-26 policy, as both vehicle types function similarly, except for the external charging socket.
Unlike the current policy, the NEV policy lacks any provision requiring importers or investors to make subsequent investments for localisation. Without this, the policy may lead to short-term profiteering rather than fostering genuine manufacturing capabilities.
PAMA had further proposed adding renewable energy vehicles, such as biogas fuel vehicles, to the definition of NEVs.
It said that CBU imports should only be allowed for companies that meet the minimum local manufacturing requirements as outlined in SRO 656. Otherwise, this could lead to a situation where vehicles are imported with no aftersales or technical support, creating a "junkyard" effect.
The current policy for HEVs and PHEVs should remain in place until 2030. If any additional incentives are provided for PHEVs, the same should be extended to HEVs.
It said that the duties and incentives for NEVs should be aligned with those for other vehicles, at least from the third year. Only new models launched after the announcement of the NEV policy should be eligible for incentives.