Auto industry: New policy to bring sharp duty reduction

Published: February 19, 2015
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The government plans to merge the categories of sub-components and components of cars and introduce a uniform rate of import duty. STOCK IMAGE

The government plans to merge the categories of sub-components and components of cars and introduce a uniform rate of import duty. STOCK IMAGE

ISLAMABAD: 

Despite stiff resistance from local manufacturers, the government is likely to cut import duty by 22-40% across the board on localised and non-localised car parts for new entrants under the new auto policy in a bid to break the monopoly of existing players.

According to officials of the Ministry of Industries, import duty on non-localised parts is 32.5% and 50% on localised parts if imported under the present regime.

“The government plans to impose 10% import duty on both localised and non-localised parts of completely knocked down (CKD) kits as an incentive for new auto players to create an atmosphere of investment and competition,” an official said, adding that this facility for the new players has been proposed for five years.

The Economic Coordination Committee (ECC), in its meeting held on October 12, 2014, had decided to give tariff protection for five or seven years to the new entrants in the auto industry to break the monopoly of existing players who are selling vehicles based on obsolete technology at high prices. It also noticed that despite getting incentives from the government, the car assemblers were continuing to sell at higher prices. They are also earning hefty profits on the advance deposited by car purchasers before the vehicles are delivered.

It also noted negative growth in the automobile sector, which had not been recording any growth for many years despite a host of incentives provided by the government. Following the direction of economic decision-makers, the Ministry of Industries and the Engineering Development Board are working on a proposed plan of incentives for the new entrants to create an environment of competition, which may result in a decline in vehicle prices.

Car components

In the present regime, vendors or in-house manufacturing of parts by the assemblers are allowed to import raw material, sub-components, components and sub-assemblies at 0%, 5%, 10% and 20% duty respectively.

The government plans to merge the categories of sub-components and components of cars and introduce a uniform rate of import duty. According to officials, it would help boost the auto industry.

Technology Support Fund

The government noted that not a single car manufacturer had been able to complete its deletion programme even after the extension in the timeframe. Moreover, the ECC meeting noted that products of the assemblers were costly and based on obsolete technology.

The government now plans to set up a technology support fund to bring new technology in the auto sector.

Imported used cars have good quality but those manufactured in Pakistan do not meet international standards. This fund would be set up with government support and the auto sector with the former contributing 50% and donors would also be invited to contribute.

The government may also deliver funds from the Export Development Fund (EDF) or under the Public Sector Development Programme.

UN regulations

The United Nations Economic Commission for Europe (UNECE) World Forum for Harmonisation of Vehicle Regulations is a worldwide regulatory forum within the institutional framework of the UNECE Inland Transport Committee.

It allows the introduction of innovative vehicle technologies, while continuously improving global vehicle safety. The framework leads to a decline in environmental pollution and energy consumption, as well as improvement of anti-theft capabilities.

The new policy proposes that Pakistan should become a member of this forum to introduce vehicle safety. In Pakistan, there is no check on vehicle safety, which results in accidents. If the country becomes a member of the forum, the auto sector players would have to submit vehicle safety certificates to the government.

HR development

The new policy proposes to the government to set up two technical training centres to train human resource in the auto sector with one centre in Karachi and one in Lahore. It is proposed that the government should seek funds from the donors to establish these centres.

Published in The Express Tribune, February 19th,  2015.

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Reader Comments (9)

  • Feb 19, 2015 - 1:48AM

    this is good , government need to reduce the duty, it will create a competition for the JApan made car, and people will enjoy journey with imports cars.Recommend

  • abdul mateen
    Feb 19, 2015 - 9:27AM

    In my experience the local assembler fail since more than decade international standards only price is increase on each vehicle on the other side imported cars much better than local car. Low cost easy approch people relay japanese product all over the globe but our mentality based on black marketing based
    no body stopRecommend

  • Atif Ejaz
    Feb 19, 2015 - 9:50AM

    Local car assemblers bribe government officials/policy makers, and block the new entrants, they also blackmail the government in the name of foreign investment. I am sure that, despite all this mumbo jumbo, nothing material is going to happen. it is too hard to break this auto cartel.Recommend

  • Fawad
    Feb 19, 2015 - 9:57AM

    @imran:
    Didn’t you read the article? In the very first paragraph it says that the duty reduction is for new companies that import parts and assemble cars in Pakistan. It is not for foreign assembled cars whether new or used.

    This policy is a joke. Foreign Direct Investment keeps declining year after year because of the poor security situation and abysmal image of this country. On top of that our car market is much too small for a new entrant. In short no one is going to invest in a new car plant here!

    They should reduce duties on used car imports and allow the import of cars that are up to 7 years old. They should allow anyone to import cars not just those doing so under the baggage scheme. These are the sort of moves that will increase competition and put pressure on our oligarchic local assemblers.Recommend

  • Mohammad
    Feb 19, 2015 - 2:22PM

    Please for God’s sake.. Shutdown Suzuki plant first which makes Alto, Mehran, etc. Recommend

  • Concerned Citizen
    Feb 19, 2015 - 3:30PM

    This is standard ET publishing..as far as I know Suzuki is the only obselete company around..Honda relies almost entirely on CKD that comes from Thailand so one cannot say imports are better as everything is made oversea’s..I have been using Toyota Corolla’s since they first came out…they have improved remarkably and continously..i travel to Thailand often and they have heaps of Corollas there and I think our Top end versions are better than theirs…infact I also heard (do not know if this is true) that Pakistani Corolla’s are amongst the cheapest in the world!! Any comments to confirm this?

    I think Suzuki plant should shut down and get someone else in their position..Recommend

  • Raisani
    Feb 19, 2015 - 5:16PM

    Finally the government woke up from deep sleep, this policy should be implemented soon or else it would b considered as an other eye-wash by the government of Shareefs. Recommend

  • Hassan Y.
    Feb 19, 2015 - 9:16PM

    The first brand that comes to my mind after reading the article is Suzuki. I agree with the people who wants to shut down the production of Suzuki, no comfort and car prices are crazy. Mehran is purchase due to no other local option available, is cheap and some companies have policies to give only local cars to employees thus people having no other option at this price level are forced to drive this car and not by choice. Imported cars are excellent, value for money and comfortable.
    Its a good move by government, hope the citizens of this nation benefit from it. Recommend

  • Parvez
    Feb 20, 2015 - 12:39AM

    Result……very small reduction in price……big profits for the car makers…….and great kick-backs to those in government responsible for floating and implementing the idea……real loser will be the government of Pakistan……but then who in the GOP cares ?Recommend

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