14 August 2015 - Islamabad
The automobile industry has managed to win over the government and obtained similar tax incentives that authoritieshe automobile industry has managed to win over the government and obtained similar tax incentives that authorities have offered to new investors, creating barriers for any European brand in establishing its footprint in the country.
According to official documents, tax incentives and protection extended to existing car assemblers have been offered under a ?proposed automobile policy? despite serious objections by the Federal Board of Revenue (FBR).
Although the government has included the definition of Medium Knocked-Down (MKD) units in the automobile category on the demand of German manufacturer Volkswagen, the extension of similar tax benefits to existing players will create issues for the new entrants in setting up their business in Pakistan.
Germany?s biggest and the world?s second largest automobile manufacturer in terms of market share, Volkswagen wants to do business in Pakistan, provided a competitive business environment is available.
However, the new investment policy under the Ministry of Industries, tabled in the Economic Coordination Committee (ECC) of the Cabinet on Wednesday, seems to be a nuisance for new investors. The ECC has deferred a decision until the next meeting.
In October 2013, the ECC had constituted a committee to review the automobile policy, which is grossly abused by the existing players to mint money. However, even after two years of work, the document still carried the bonanza of huge benefits for the existing players.
The Committee was chaired by the Minister for Water and Power Khawaja Asif with Privatisation Commission Chairman Mohammad Zubair as his deputy.
From 2009 to 2013, in his capacity as a member of the Public Accounts Committee, Khawaja Asif used to grill car assemblers for fleecing consumers and assembling low quality vehicles. However, when it came to making a difference, he could not take a stand.
In the proposed policy, the government has divided the auto sector into four categories. Category A is marked for Greenfield new investment by a new player, category B is defined for revival of an existing non-operational plant, Category C is meant for the expansion of existing facilities for production of a new variant and category D is included for Greenfield investment by auto parts makers.
Category A
Concerning investment by a new player, the government has proposed 10% custom duties on import of non-localised parts and 25% rate for localised parts for a period of four years. This is for the production of passenger cars and LCVs that are 800 or above cc.
It has offered to allow 100% imports of parts at 10% duties for a period of three years for manufacturing of below 800cc cars. For manufacturing of buses, trucks, tractors and prime movers, the government has offered 100% imports of parts at prevailing custom duties for a period of three years.
MKD operations
The government has offered imports of 100% MKD parts at 25% duty rates for a period of four years for passenger cars to new players. After four years, Completely Knocked Down tariff regime rates will apply. The CKD rates are proposed at 30% for non-localised component and at 45% for localised components.
The government has also offered all incentives, which are currently available under the Special Economic Zones Act to investment in the automobile industry. The new investor will also be allowed to import 100 vehicles of the same model in Completely Build Units form at 25% of the prevailing rate for test marketing.
Category B, C investors
All the tax benefits that the government has offered to the new market players will also be available to existing players. The only difference is the time period. As against the four-year tax incentives, the existing players will avail the facilities for three years.
FBR opposition
The FBR has opposed extending any incentive to existing players, either in the name of expansion or revival of non-operational auto assembling units.
?The existing manufacturers have availed concessions for two decades and extending further benefits to them will be of no use,? according to FBR?s comments on the auto policy. ?The extension of incentives to the existing players in the name of reviving sick units or expanding the capacity for introduction of new model cars may block entry of new investors?.
The FBR has also questioned the technological advancement by the existing assemblers. There is also no mechanism that ensures that the existing investors will pass on the tax break benefits to the consumers in shape of low prices and better quality.
Published in The Express Tribune, August 14th, 2015.have offered to new investors, creating barriers for any European brand in establishing its footprint in the country.
According to official documents, tax incentives and protection extended to existing car assemblers have been offered under a ?proposed automobile policy? despite serious objections by the Federal Board of Revenue (FBR).
Although the government has included the definition of Medium Knocked-Down (MKD) units in the automobile category on the demand of German manufacturer Volkswagen, the extension of similar tax benefits to existing players will create issues for the new entrants in setting up their business in Pakistan.
Germany?s biggest and the world?s second largest automobile manufacturer in terms of market share, Volkswagen wants to do business in Pakistan, provided a competitive business environment is available.
However, the new investment policy under the Ministry of Industries, tabled in the Economic Coordination Committee (ECC) of the Cabinet on Wednesday, seems to be a nuisance for new investors. The ECC has deferred a decision until the next meeting.
In October 2013, the ECC had constituted a committee to review the automobile policy, which is grossly abused by the existing players to mint money. However, even after two years of work, the document still carried the bonanza of huge benefits for the existing players.
The Committee was chaired by the Minister for Water and Power Khawaja Asif with Privatisation Commission Chairman Mohammad Zubair as his deputy.
From 2009 to 2013, in his capacity as a member of the Public Accounts Committee, Khawaja Asif used to grill car assemblers for fleecing consumers and assembling low quality vehicles. However, when it came to making a difference, he could not take a stand.
In the proposed policy, the government has divided the auto sector into four categories. Category A is marked for Greenfield new investment by a new player, category B is defined for revival of an existing non-operational plant, Category C is meant for the expansion of existing facilities for production of a new variant and category D is included for Greenfield investment by auto parts makers.
Category A
Concerning investment by a new player, the government has proposed 10% custom duties on import of non-localised parts and 25% rate for localised parts for a period of four years. This is for the production of passenger cars and LCVs that are 800 or above cc.
It has offered to allow 100% imports of parts at 10% duties for a period of three years for manufacturing of below 800cc cars. For manufacturing of buses, trucks, tractors and prime movers, the government has offered 100% imports of parts at prevailing custom duties for a period of three years.
MKD operations
The government has offered imports of 100% MKD parts at 25% duty rates for a period of four years for passenger cars to new players. After four years, Completely Knocked Down tariff regime rates will apply. The CKD rates are proposed at 30% for non-localised component and at 45% for localised components.
The government has also offered all incentives, which are currently available under the Special Economic Zones Act to investment in the automobile industry. The new investor will also be allowed to import 100 vehicles of the same model in Completely Build Units form at 25% of the prevailing rate for test marketing.
Category B, C investors
All the tax benefits that the government has offered to the new market players will also be available to existing players. The only difference is the time period. As against the four-year tax incentives, the existing players will avail the facilities for three years.
FBR opposition
The FBR has opposed extending any incentive to existing players, either in the name of expansion or revival of non-operational auto assembling units.
?The existing manufacturers have availed concessions for two decades and extending further benefits to them will be of no use,? according to FBR?s comments on the auto policy. ?The extension of incentives to the existing players in the name of reviving sick units or expanding the capacity for introduction of new model cars may block entry of new investors?.
The FBR has also questioned the technological advancement by the existing assemblers. There is also no mechanism that ensures that the existing investors will pass on the tax break benefits to the consumers in shape of low prices and better quality.
Published in The Express Tribune, August 14th, 2015.
