After remaining pending for more than two and a half years, the Economic Coordination Committee (ECC) of the federal cabinet have approved the ‘Automobile Development Policy 2016-21’, as announced by the Ministry of Finance. The policy will formally be introduced on Monday, the 21st of March 2016.
The new automobile policy will offer tax incentives to new entrants in order to help them establish manufacturing units in Pakistan and effectively compete with the existing three assemblers, who are operating since the early 90s.
“The policy is aimed at enhancing consumer welfare and boosting competition besides attracting new players. The existing three car manufacturers will not be entitled to the benefits that are being offered to the new investors.” said Miftah Ismail, Chairman of the Board of Investment. He also said greater localization of auto parts had been ensured in the policy and in case the new entrants were unable to achieve the targets, they would be penalized.
Contrary to the demand of Volkswagen group, the definition of medium knocked-down unit has been eliminated from the policy. The government desires that Fiat, Audi or Volkswagen should establish its plant in the country, which is a positive initiative by our government.
Incentives as per the Auto Policy:
A major incentive for the new investors is reduced 10% customs duty on non-localized parts for five years against the current 32.5%. For investors, the duty will be slashed by 2.5% to just 30% from the new fiscal year of 2016-17.
Beginning from July, the localized parts can be imported by the new entrants at 25% duty compared to the current 50% for five years. For existing players, the duty on import of localized parts will be brought down to 45% from the new fiscal year.
The government has allowed one-off duty-free import of plant and machinery for setting up an assembly and manufacturing facility. It has also permitted import of 100 vehicles of the same variants in the form of completely built units (CBUs) at 50% of the prevailing duty for test marketing after the groundbreaking of the project.
Another important point is in the CBU category, customs duty on cars up to 1,800cc engine capacity has been reduced by 10% for two years – 2017-18 and 2018-19. This will be applicable to the existing players as well and will encourage reduction in car prices. Also a single duty rate will be applied to the localized and non-localized parts after 5 years of the new policy. The present duty structure will continue for 7 years for the new investors.
For revival of sick or non-operational units, the non-localized parts can be imported at 10% and localized parts at 25% duty for three years for the revival of a sick unit. The government however, did not change its policy for used car imports, leaving consumers with a limited range of choice until new brands of good quality are produced in the domestic market.
There were high hopes among the auto consumers of the country regarding the automobile policy and so far it seems quite encouraging for new assemblers. The existing trio of Japanese assemblers is long blamed for selling low-quality vehicles to consumers at high prices. By bringing in more manufacturers here, and developing competition in the industry in fair means, one can foresee better days ahead for the growth and progress of our automobile industry.
The policy should also push the existing players to improve their quality and product lineup because that’s the only thing which will keep them ahead among the competitors in coming years. It will take a few years for any new comer to establish its plant here, till that time it will be interesting to see whether the existing assemblers of our country are prepared for the upcoming competition or not.
Possible manufacturers that might enter our market are Audi, Volkswagen, Fiat, Renault, Nissan, Hyundai, Kia, while Zotye, JAC, Changan, Geely and Chery among the Chinese.