Lahore: The business community has welcomed the approval of new automotive policy, hoping the policy will attract new European car makers, as the policy offers tax incentives to new entrants to help them establish manufacturing units and compete effectively worldwide.
They said that after a hiatus of almost two and a half years, the Economic Coordination Committee (ECC) of the cabinet finally gave the go-ahead to the Automotive Development Policy 2016-21 which is appreciable.
Pakistan Industrial & Traders Associations Front Chairman Irfan Iqbal Sheikh said that after a delay that cost the country billions since 2011 when the automobile policy started being formulated, its final version was approved, paving the way for new international car manufacturers to enter the local market.
He said that the automotive policy is formally launched on Monday (today). The policy is aimed at enhancing consumer welfare and boosting competition besides attracting new players, he added.
It is good that 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. Now the international companies like Fiat, Audi or Volkswagen can establish their plants in the country without any further delay as the policy give them several incentives.
Baber Mubin, the industry expert from BMA Capital Management, stated that policy’s main objectives are ‘higher volumes, more investment, enhanced competition, tariff rationalization and consumer welfare’.
“In this regard, the policy looks to entice new investors and revive closed assembling facilities by incentivizing them with concessional import duty for 5 and 3 years, respectively. The policy extends some concessions to existing OEMs as well, decreasing CKD import duty rate to 30%/45% for non-localized/localized parts (previous” 32.5%/50%).
Pakistan Association of Automotive Parts & Accessories Manufacturers Chairman Mumshad Ali said the basic objective behind the much awaited auto policy, should have been to stimulate rapid growth & investment in the automotive sector through simultaneous incentives to new entrants, existing assemblers and auto parts manufacturers (APMs). Sadly, it seems that the auto policy is entirely focused on new entrants.
Mumshad pointed out that the auto policy approved by the ECC on 18 march 2016 will not make any significant contribution towards the goal that the Finance Minister has set for himself and for Pakistan.
Mr. Mumshad said that, since 2013, the auto policy formulation was being spearheaded by Mr. Muhammad Zubair, Minister for Privatization & Deputy Convener of the ECC Committee on auto sector. Mr. Zubair held several parleys with PAAPAM & other industry stakeholders and visited the Pakistan Auto Parts Shows in 2015 & 2016 to get first hand knowledge of the industry’s capabilities and potential for stimulation of economic growth.
It seems surprising that, at the last minute, the task of finalizing the auto policy was taken over by the Chairman, Board of Investment, Mr. Miftah Ismail, who was never a part of consultations with the APMs and hence, may not have a clear understanding of the ground realities, dynamics & potential of the domestic auto sector, Mumshad added.
Tahir Saeed, another industry expert from Topline, observed that the new auto policy is positive for existing Original Equipment Manufacturers (OEMs) as custom duty on Completely Knocked Down (CKD) units has been reduced from 32.5% to 30%, which will improve margins of existing players, reduction in import duty rates on localized and non-localized parts to improve indigenous competitiveness and age limit of used imported passenger cars maintained at 3 years and for Buses, Vans, Trucks, Pickups, SUVs including 4×4 vehicles at 5 years.
He said that the new policy aims to facilitate higher volumes, more investment, enhanced competition and better quality with latest technology. Auto policy 2015-20 lowers entry barriers for new entrants and incentivizes the existing non-operational / closed assembly and manufacturing facilities since June 30, 2013. The previous Auto Policy had expired in 2012 and the government had not finalized a revised one since then. This had led to uncertainty and lack of new investment in the Auto sector.