𝗨𝗡𝗗𝗘𝗥-𝗜𝗡𝗩𝗢𝗜𝗖𝗘𝗗 𝗖𝗕𝗨--𝗢𝗩𝗘𝗥-𝗜𝗡𝗩𝗢𝗜𝗖𝗘𝗗 𝗖𝗞𝗗 K𝗜𝗧𝗦 
MG has created a lot of hype in the current auto-market of Pakistan. M/s JW SEZ (Private) Limited from Pakistan is in joint venture with SAIC Motors to Introduce MG Motors in Pakistan. Consumers are very excited for their upcoming and exciting for sale products. There has not been a single day when we don’t hear about MG. Angry customers with complaints and issues of late deliveries or no details on their booked vehicle is nothing new. There was one more issue which raised a lot of eye brows early this year. We have covered it in a detailed depth here already many times. But let’s briefly go over it.
𝗕𝗔𝗖𝗞𝗚𝗥𝗢𝗨𝗡𝗗:
Back in mid-February 2021 , the social media was buzzed with yet another MG related news and it was more of controversy. The problem surfaced when many MG HS owners in Pakistan reported a problem with the registration of the vehicle. As these are imported vehicles, a BOL/ Bill of Lading / Good declaration is must at registration time.
According to reports back then, Federal Board of Revenue (FBR) started a probe against Morris Garage (MG) Pakistan.. As per details, FBR launched investigation over suspicion of ‘under-invoicing scam’.
JW-SEZ started importing a large quantity of MG vehicles, Completely Built Units/ CBU into the country in September 2020 for commercial sale. Meanwhile, JW-SEZ, the local partner of MG/ SAIC in Pakistan, did apply for Greenfield Status as per the ADP 2016-2021 Auto Developmental Policy . The policy allowed companies that they can import of 100 CBU units per variant for test, marketing and launch purposes.
The import of CBU more than the 100 units per variants as allowed per auto policy raised questions. JW-SEZ informed in this regard that the company is actually paying full 123.77% incidence of duty [ instead of 50% subsidy] on each unit of MG HS they are importing. The 123.77% incidence of duty is the correct duty for a vehicle, as per FBR custom tariff, if paid in full. So, as they are paying full duty, any number of the units can be commercially imported, which is undoubtedly correct and has no issues whatsoever.
MG HS declared value at customs was $ 𝟭𝟭,𝟲𝟯𝟮 per unit, additionally the issues of registration as well as incomplete and blacked out documentations raised question mark and suspicion of Under invoicing. FBR took the issue and Model Customs Collectorate of Appraisement & Facilitation (East), Karachi was asked for Audit of M/s JW SEZ (Private) Limited.
Read detailed article here > https://www.pakwheels.com/blog/fbr-starts-investigation-against-mg-motors-over-under-invoice-scam-reports/
𝗔𝗨𝗗𝗜𝗧 & 𝗩𝗔𝗟𝗨𝗘 𝗜𝗡𝗖𝗥𝗘𝗔𝗦𝗘, $𝟭𝟭,𝟲𝟯𝟮 𝗧𝗢 $𝟭𝟯,𝟯𝟭𝟰.
During the course of investigation, it was found that JW SEZ imported the first consignment of MG vehicles back in May 2020 , with declared unit price of MG HS @ $ 14,000 , MG ZS @ $ 9,000 while MG ZS EV @ $22,000. Later on JE-SEZ imported MG HS @ declared value of $11,632 while MG ZS @ $9,245/-.
The Auditor also informed that JW-SEZ and SAIC International Co. are related parties in the local joint venture operational agreement [ SAIC with 51% share , JW-SEZ with 49% ] and the transaction value cannot be accepted as per Section 25 (1) (d) of Customs Act, 1969, which states that that “two persons shall be deemed to be associated in business with one another if, whether directly or indirectly, either of them has any interest in the business or property of the other or both have a common interest in any business or property or some third person has an interest in the business or property of both of them”.
Directorate of Post Clearance Audit examined various method to calculate/ evaluate the custom value of the imported vehicles and eventually decided to use “Fall Back Method ” as per 25(9) of the Customs Act, 1969. As per this formula , the declared unit value of MG HS has been increased from $ 11,632 per unit to $ 𝟭𝟯,𝟯𝟭𝟰 . This change in declared value resulted in shortage of approx 2 Billion Pakistan ruppes in recoverable duties , which JW-SEZ deposited with the FBR as Bank Guarantee to clear the vehicle stuck on port , while the audit proceedings were ongoing.
Read detailed article here > https://www.pakwheels.com/blog/writing-on-the-wall-says-mg-prices-will-go-up/
𝗖𝗕𝗨 𝗣𝗥𝗜𝗖𝗘 𝗕𝗨𝗠𝗣𝗘𝗗:
After the increase in the declared value as per audit report, it was clear that the price of the CBU MG HS will increase and we predicted that also back in early May 2021. MG HS booking were closed around mid of March, although the booking reopened by end of May 2021 but MG increased the price of MG HS CBU by PKR-300,000. The new price for imported CBU MG HS touched PKR-5,749,000/- from 5,449,000/-.
𝗖𝗞𝗗 𝗖𝗘𝗟𝗘𝗕𝗥𝗔𝗧𝗘𝗗 𝗢𝗡 𝗧𝗪𝗜𝗧𝗧𝗘𝗥:
There had been a lot of reservation and confusion about the local operation of the MG in Pakistan. One major issue is, there is no officially publically known management for the MG in Pakistan beside just one TWITTER account. Anyhow on May 15, twitter announced the details about the under construction MG local plant. This was really a sign of relief. 10 days later twitter announced the first CKD MG HS on wheels.
These were very great news and surely improved the public opinion and perception regarding the brand. It is pertinent to note that MG received the greenfield status as per Auto policy in Jan 2021 for establishing an assembly line for the MG vehicles in Pakistan. As per policy the company Auto policy , incentives & benefits includes ; Duty-free import of plant and machinery for setting up the assembly and manufacturing facility on a one-time basis, Concessional rate of customs duty @ 10 percent on non- localized parts and @ 25 percent on localized parts for five years for the manufacturing of vehicles in Pakistan.
There had been another TWITTER news and apparently another great achievement when it was announced about the “MADE IN PAKISTAN MG ZS EV”. But we found out that the video clip with assembly of the ZS EV was actually an edited video of the MG India. Read here > https://www.pakwheels.com/blog/afridi-mg-zs-ev-made-in-pakistan-not-really/
𝗖𝗞𝗗 𝗔𝗦𝗦𝗘𝗠𝗕𝗟𝗬 𝗟𝗜𝗡𝗘:
We do know that MG local assembly line in Pakistan is under construction OR maybe complete and we will have local assembled MG vehicles soon. The purpose of CKD/ Complete Knock Down is to cut down on the cost of the vehicle and also help develop the local industry. In case of CKD, a vehicle parts are imported [ some are localized in the country of assembly ]. The metal stamped parts are welded, a Skelton is made or you can say the main body is made, it goes through the various processes like E-coat/ anti corrosion coating and wash . The vehicle at this stage is known as BODY IN WHITE/ BIW. BIW then goes to paint shop.
The painted skeleton then goes to the next stage known as final assembly, where the engine, and other interior and exterior parts and components are installed and then final inspection and eventually leaving the factory. A CKD operation need a higher upfront developmental cost by the company as far as the factory infrastructure as more stages of the assembly is required BUT it is the more viable solution because it not only helps reduce the final cost of vehicle but can also help improve and develop the associated parts industry if the government of the country mandate a minimum % of the localized parts, thus overall generating more human resource / jobs .
Here, I would like to quickly go over the SKD/ Semi Knock Down Kits manufacturing process in the car industry. In this case, all the stamping, welding including a complete BIW and in some cases the painted skeleton is imported and only left over stage is the final assembly . Final assembly stage, in which the components [ those are again all imported, engine, transmissions, interior and everything else] are just bolted / fitting inside the body and the vehicle is ready. In SKD process, the companies don’t invest that much upfront as most of the process is eliminated BUT it also does not help the local industry in general.
Pakistan Auto development Policy as per which all the new entrant emerged in the country, incentives and tax breaks are also given for the establishment of the CKD assembly line and NOT the SKD.
𝗠𝗚 𝗛𝗦 𝗖𝗞𝗗 𝗞𝗜𝗧𝗦 𝗗𝗘𝗖𝗟𝗔𝗥𝗘𝗗 𝗩𝗔𝗟𝗨𝗘 𝗥𝗔𝗜𝗦𝗘 𝗖𝗢𝗡𝗙𝗨𝗦𝗜𝗢𝗡:
Recently , a new news is under discussion and this time again related to the declared value of the MG HS. As we know as per TWITTER that local assembly line for MG is ready because the first “ local assembled “ vehicle was seen. This means that now like any other local car companies, we will soon have local assembled MG vehicles. In other words, as per Auto Policy CKD kits will be converted to the finished unit locally. Now as per the recent confirmed import data, JW-SEZ imported number of kits of MG HS and the declared value of each KIT as $̲1̲6̲,̲3̲2̲9̲ . As a reminder the CBU units , which are fully assembled and imported units by JW-SEZ had a declared value of $ 𝟭𝟭,𝟲𝟯𝟮 by JW-SEZ. Customs later increased the value to $ 𝟭𝟯,𝟯𝟭𝟰 , the increase in declared value was NOT initiated by JW-SEZ. This means that a fully assembled vehicle is actually cheaper by $𝟰𝟲𝟵𝟳 , on basis of initially declared value.
Keep in mind that the imported kits has to go through the assembly line which has its own added cost. We should also know that CBU attracts much higher taxes and around 123.77% of the declared value in case of MG HS with 1.5L engine capacity, while CKD under Greenfield status are highly subsidized.
So, what is the science behind this craziness and the catch ? How come a brand new imported vehicle has a lower declared price than the non-assembled vehicle in shape of a kit ? I mean if you are a car company owner, why we would establish an assembly line as it will cost much higher. Technically a KITS should cost much lower than the completely built unit/ CBU . In simple words if an imported KIT is $16,329, the CBU should be much higher in price.
We do know that a CKD assembled model cost lower and if we apply same formula on the MG HS, the local assembled vehicle should cost less than PKR-5,749,000, the current price of the CBU MG HS. Do you think MG increased the declared price to $̲1̲6̲,̲3̲2̲9̲ for unit KIT , So they don’t pass on the maximum benefit to the consumer on the local assembled vehicle and instead making much higher profits ?
The local MG operation is joint venture of JE-SEZ and SAIC from china with SAIC having 51% ownership in Pakistan operation. Do you think SAIC, who are the parent company and a “Chinese state owned “ , manipulating all these declared pricing as they are the major stake holder in all this operation ?
Or should we say SAIC along with the JE-SEZ were involved in DUMPING? Dumping is an another complete topic and I am not an expert on it but in economics/ trade , a foreign company intentionally lower their price of their product in the export country to hurt and damage the competition by unfair tactics and flooding the market with the cheaper product with an unreal pricing .
In case of dumping , the price is lowered to the point that its even lower than its manufacturing cost and in some cases even lower than the price in the home country. This cause damage to the industry in the foreign country of operation results in the monopoly and eventually taking over the market share by unfair means .
DUMPING is illegal and there are strict rules as per various global trading agreements . So, is SAIC and JW-SEZ are involved in dumping of MG HS by import of thousands of CBU units ? The declared pricing of KITS and CBU don’t explain the situation.
I would also like to share that JW-SEZ has also imported BIW/ Body In White and painted skeletons [ 281 Units ] , which means that the only process left would be the final stage of assembly or in other words it looks like a SKD Operation instead of CKD . This also somehow violates the Automotive Development Policy (2016-2021) of Pakistan and does not help our local economy and also will result in serious outflow of funds.
MG, kindly dont call the local assembled vehicles as "MADE IN PAKISTAN ".
Lastly;
I would like to remind that consumer have a lot of expectations and it’s good to see local car industry is flourishing but there should always be clarity and consumers should get the maximum benefit. Obviously companies should make profits but not by hook or crook and by having “favoritism” with the regulator. There should be fair competition among the players and complete transparency.
I would also like to remind that, For decades, Pakistani automobile consumers have been exploited by cartels and it seems unfortunately the situation is same with new cartels and monopolist . Plus, buyers have to pay billions of rupees to get delivery of the very vehicles for which they had already paid and actually paying undocumented black money and same has been seen and experienced by MG buyers.
Yes , maybe competition is an unfamiliar phenomenon in Pakistan BUT please there should be a fair competition to serve Pakistani consumers and there should not be any deceptive practices, or sense of corruption.
Let’s hope for the best.
[ f-w @PakWheels.com]
( this is an opinion post based on publicly available information. This post must not be taken for making any judgment about the subject matter as, there is possibility of missing information as well as there is no official statement from the company in this regard )
