Wednesday, September 10, 2008
By Mansoor Ahmad
LAHORE: Automobile manufacturers and auto-parts’ vendors have warned the government that despite an additional levy of 5 per cent excise duty, the revenues from automobile sector would decline by over 25 per cent this year due to declining demand.
In a presentation made to the government, they pointed out that the industry paid Rs63 billion cumulative taxes that the government has levied on automobiles. This year, despite additional duty the sector would hardly contribute Rs50 billion in the national exchequer. The Pakistan Association of Auto Parts and Accessories Manufacturers (PAAPAM) and Pakistan Automobile Manufacturers Association (PAMA) in a joint presentation have suggested various steps that should be taken by the government to arrest the slow down in sales. The two associations appealed to the government to withdraw the 5 per cent excise duty on cars and impose a ban on import of used parts instead of allowing their import after imposing 30 per cent redemption duty.
They asked the government to place stringent checks on auto-parts imported commercially or as semi knock out kits. They proposed the introduction of non-tariff measures to curb the import of parts that are being manufactured in Pakistan. They pointed out that the 50 per cent duty has failed to stop the import of these parts as the import prices are easily manipulated by the importers. Moreover, import under SRO 63 attracting 50 per cent duty should not be allowed under FBR’s CARE system. They have also appealed for special incentives for the auto sector including lower mark-up on loans and a waiver of 35 per cent L/C margin.
They said that encouraged by the automobile growth from 2001-2007, the industry and the government of Pakistan fixed a target of over half million units’ production by the year 2011-12 that now seems out of reach. The manufacturers regretted that the industry has failed to achieve the targeted productions in 2006-07 when 1,95,688 cars were manufactured against a target of 2,26,620 units. However, there was some growth in production that year. In 2007-08 the production declined to 1,87,634 units against a projected target of 2,66,543 units. In the current fiscal year they said the production is expected to decline to 1,50,107 units that are half the projected target of 3,13,486 units. They said that there would be a decline of around 20 per cent in production over the production achieved in 2007-08.
Under the current scenario the two associations warn the production would decline to 1,12,778 units by 2011-12. The two associations pointed out that investment in the automobile sector has frozen at Rs98 billion and is expected to remain at the same level by 2011-12. They said that had things gone as planned, investment was projected to increase to Rs225 billion. They said even at the current high taxation, government revenues would decline from a peak of Rs63 billion to Rs38 billion.
There are 500 auto-parts manufacturers in the country that supply parts to original equipment manufacturers (PAMA members). Half of these units are in Lahore and adjoining cities while half are in Karachi and cities around it. Total gross sales of automobiles in Pakistan were Rs214 billion in 2006-07 or $2.67 billion, which is peanuts, when compared to the global automobile annual turnover of $460 billion.
The number of cars per 1000 persons in Pakistan is eight compared to 10 in China, 12 in India, 25 in Sri Lanka 641 in Malaysia and 765 in the United States.
The share of automobiles in Pakistan’s GDP is 2.8 per cent and its share in the manufacturing sector is 16 per cent.