Auto sector seeks long-term policy

Opinions divided over import of used cars, reduction in duties and tariffs

Listen to article

KARACHI:

Experts of the auto sector, in their budget proposals, have called on the government to draw up a long-term policy and provide relief to the industry and customers in the larger interest of the national economy.

Automobile sector consultant Shafiq Ahmed Shaikh said it augurs well that the International Monetary Fund (IMF) shows interest in the auto sector and now its issues will not only be highlighted, but solutions will also be provided for the long run.

The IMF's suggestion to remove restrictions on the import of used vehicles is very critical because used cars will compete for the same market where the existing industry is operating. Another suggestion for a gradual reduction in duties will also prove to be a game changer.

According to policymakers, this specific proposal will not only bring down trade barriers but will also simplify customs procedures, including the phased elimination of additional customs duty (ACD) and an 80% reduction in regulatory duty (RD). It will gradually reduce the weighted average tariff from 10.6% in FY25 to 7.4% by FY30.

These tariff cuts will reduce protection for the local auto industry, lower the cost of vehicles as well as increase exports and affordability.

"It is really a sensitive point, which must be discussed with the auto industry and other stakeholders for long-term and acceptable solutions," he said. "As we know, electric vehicles (EVs) are the future, which will mainly come from China, so it is the right time that sustainable and long-term policies and incentives for EVs and their accessories are introduced for better investments and more jobs."

Indus Motor CEO Ali Asghar Jamali called for revising the financing limit from Rs3 million to 70% of a vehicle's retail price and extending the financing tenure from three years to seven years. It is good to encourage overseas Pakistanis to purchase locally manufactured vehicles by offering tax and duty exemptions, provided payments are made through foreign currency accounts. This will help shift demand away from used car imports.

He stressed the need for offering tax and duty breaks to vehicle exporters to ensure competitive international pricing. Additionally, there is a need to sign free trade agreements and preferential trade agreements to enhance global competitiveness and market accessibility for Pakistani vehicles.

As far as used cars are concerned, the import of such cars should be restricted as it adversely impacts economic growth, fosters tax evasion and fuels the grey market. Pakistan has an annual manufacturing capacity of 500,000 passenger vehicles, of which 76% remains underutilised. There is an urgent need to keep a suitable tariff difference between completely knocked down (CKD) and completely built-up (CBU) units to incentivise local assembly, promote job creation and support economic growth.

The government should develop a consistent and stable policy framework for the automotive sector to ensure long-term growth and avoid frequent policy changes. This includes the formulation of a comprehensive policy to promote the establishment of local industries for essential raw material such as steel, resin, aluminium and copper, which are critical components for high-value goods. For instance, India's steel policy has enabled it to become a net exporter of steel.

Jamali pleaded for rationalising the tax structure for locally manufactured vehicles to create a level playing field with the imported used cars. He also called for adjusting the depreciation rate for the imported used cars from 1% to 0.5% to enhance tax revenue for the government.

Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam) Senior Vice Chairman and Jin Kwang JAZ Limited Executive Director Shehryar Qadir voiced deep concern over reports that the government was considering slashing peak customs duty on CBUs to 15% and CKD units to below that threshold by 2030 under the National Tariff Policy 2025-30.

Though it has been termed a structural reform aimed at promoting export-led growth and aligning with the IMF's liberalisation benchmarks, critics argue the proposal risks triggering de-industrialisation and could unravel decades of investment in Pakistan's automotive sector. Paapam has emerged as a leading voice against the proposed cut, warning that such a drastic step will render local parts manufacturers uncompetitive in their own market.

The association has submitted a comprehensive objection to the Engineering Development Board (EDB), asserting that the policy, if implemented, will jeopardise one million direct and indirect jobs and erode investor trust in Pakistan's industrial policy continuity.

The local parts makers face additional cost disadvantages compared to regional countries in the form of higher freight (on raw material as steel, plastic resin or rubber is not produced in Pakistan) and financing costs as well as smaller economies of scale. A recent study submitted by Paapam to the EDB shows that Pakistan's parts industry suffers from a 34% cost disadvantage relative to the regional peers.