Auto sector not happy about the proposed hike in FED

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The last Government of PML (N) had approved “The ADP 2016-21”, and later through which at least 10 automobile companies were granted Brownfield and Greenfield status. So, in order to establish the assembling plants, these companies have spent billions of rupees. But, the new plan, in which the mini-budget of  “Federal Excise Duty (FED)” led by the current Govt of Imran Khan seems to violate the (ADP) 2016-21. These concerns were shown by the new auto sector players, said the Chairman Board of Investment. And thus, the companies who were granted the Brownfield and Greenfield status are facing the same problems as that of other existing companies.

The new plan as a part of the reform package was presented by the Finance Minister, Asad Umar on January 23, 2019, and Kia Lucky Motors (KLM) which is a new entrant, had drawn attention towards this fiscal measure proposed by the current government.

According to this new budget, the Federal Excise Act (FEA)  2015 would be reintroduced along with the 55A, by which a 10% FED will be imposed on all the locally assembled and manufactured motor cars which would include 1800 cc or above motors cars, SUVs and even other motor vehicles.

However, the KLM highlighted that even it being the new entrant as the ADP (2016-21) having category “A” its status of Greenfield  would be exempted from this new FED by the virtue of the clause 4.2.1(c) which clearly states that “the duty rates (10 per cent on non-localized parts and 25 percent duty on localized parts) applicable to a new entrant under category “A” for a period of five years”.

Read Also –Mini-Budget: Boon or a Bane for the Automobile Sector?

In the automobile sector, the KLM decided to invest under the ADP 2016- 2021 as a new entrant from the day of contract and upon KLM would have been exempted from all duty taxes and even for the sake of abundant clarity, the duty will remain constant for all of its products and variants till the contract is completed in 2021.

The company’s Chief Operating Officer (CFO), Muhammad Usman has said that KLM is expected to introduce its product of having capacity 0f 2000 cc and the 10% FED won’t be applicable on them as well.

Indus Motors is another auto company, which is not a new entrant but rather working for last 30 years in Pakistan has also asked the Federal Government, that the FED should be removed on the SUVs which are manufactured locally. Or else with such measure, the vendors and local jobs would lose out,

Back in 2013, IMC was the first OEM to have invested approximately Rs 3 billion to introduce Pakistan’s first local manufactured SUV Toyota. But, it had faced losses on this project too even the 10% tax from the Government on it back then dropped the revenue generated. Without 10 % FED, IMC was selling on average 190 units per month resulting in approximately Rs 370 million monthly duty/tax revenue for the government. However, Fortuner, with Levy of 10 % FED, average sale volume dropped to just 35 units per month which resulted in the massive drop in the government revenue.

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