Auto industry: New policy to bring sharp duty reduction

[Muhammad Omar]

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.

 

[Yousafzai_M]

Reducing taxes on import of cars? how exactly is this going to help the millions living below the poverty line?

 

[Bouncer]

Reducing taxes on import of cars? how exactly is this going to help the millions living below the poverty line?

Where does it say that this policy will help millions living below poverty line?

This is a very welcome news that government is taking a stance against these low quality assemblers. A middle class man who works for 5-10 years to buy a car for his family doesn't give a phuk where it was assembled. Quality is what people care about which these local players are failing to provide.

 

[xyxmt]

Reducing taxes on import of cars? how exactly is this going to help the millions living below the poverty line?

there is much more to economy than helping the ones below the poverty line but it seems like in Pakistan we believe in this one line economic policy.

 

[Donatello]

They don't say if the duty reduction is on import of cars or not....they just mention auto parts......seems more like to help the useless, shyt quality local manufacturers.

 

[qamar1990]

Reducing taxes on import of cars? how exactly is this going to help the millions living below the poverty line?

how is it helping the poor by keeping the duty on cars?
i doubt it is made to benefit us pakistanis who can afford cars much... because after these politicians are one importing their cars.. the duty will be raised again...

 

[Cheetah786]

Reducing taxes on import of cars? how exactly is this going to help the millions living below the poverty line?

Reducing Taxes creates Opportunities for companies to invest which results in employment.

 

[Yousafzai_M]

Where does it say that this policy will help millions living below poverty line?

This is a very welcome news that government is taking a stance against these low quality assemblers. A middle class man who works for 5-10 years to buy a car for his family doesn't give a phuk where it was assembled. Quality is what people care about which these local players are failing to provide.

Exactly it won't help, instead government is giving away its revenue, for the minority who can afford cars.

Reducing Taxes creates Opportunities for companies to invest which results in employment.

Except that the tax reduction is not for investment, but imports of goods not needed by a vast majority of people.

there is much more to economy than helping the ones below the poverty line but it seems like in Pakistan we believe in this one line economic policy.

When half of your people are living below the poverty line, then yes, you need the one line Economic policy.

 

[xyxmt]

When half of your people are living below the poverty line, then yes, you need the one line Economic policy.

well Mr. Economist you should give some suggestion to govt as to how they can make poor people rich without reviving any economic activity and without starting mega projects and giving jobs to people.

 

[airmarshal]

When will Pakistan evolve a policy to manufacture and export vehicles? Unless thats done, there will be a monopoly and group of assemblers who will sell cars at extremely high price and old technology.

 

[Yousafzai_M]

well Mr. Economist you should give some suggestion to govt as to how they can make poor people rich without reviving any economic activity and without starting mega projects and giving jobs to people.

You don't need to be an economist to know that to improve your financial situation, you either have to increase your income or cut down your expenses, or both.

Cutting taxes on import of auto parts is not going to revive the economy. Government is losing money instead.

 

[OTTOMAN]

A middle class man who works for 5-10 years to buy a car for his family doesn't give a phuk where it was assembled.

that's why we have govts. and states to do the thinking.
local cars are expensive because of sales tax. if there's no sales tax Mehran would cost $3000, and same people can buy car in one year's saving, now perhaps they give phuk!

 

[Bouncer]

local cars are expensive because of sales tax. if there's no sales tax Mehran would cost $3000, and same people can buy car in one year's saving, now perhaps they give phuk!

Please backup this "Mehran for 3000USD if there is no sales tax" claim with some source and/or calculations. If what you are claiming is true, it means that Government is raking in almost 120% sales tax on a local car? Not possible.

 

[Sugarcane]

We need new players in auto Industry

 

[OTTOMAN]

Please backup this "Mehran for 3000USD if there is no sales tax" claim with some source and/or calculations. If what you are claiming is true, it means that Government is raking in almost 120% sales tax on a local car? Not possible.

Unfortunately... this is true, govt. takes taxes on local made cars but give tax exemptions on imported cars.
with support of internet, you can also find out how much is the production cost and how much the tax.
even the production cost calculations have hidden tax.