November 16, 2006	Thursday	Shawwal 23, 1427

ISLAMABAD, Nov 15: The government has unveiled a pre-determined five-year tariff under the Auto Industry Development Plan (AIDP) to increase production turnover of the auto industry and annual export of parts to $10 billion (Rs600bn) and $650m (Rs39bn) respectively by 2011.

The plan discourages import of used cars through tariff measures and calls for introduction of a computerised registration system on a uniform basis for access across the country.

The annual gross sales turnover of the auto industry, at present, stands at Rs210 billion while export of auto parts are estimated at $35 million. As such, the increase in production turnover is projected to increase by 185 per cent while the exports of auto parts would make quantum jump.

The plan envisages development of two auto-parts vendor clusters near Port Qasim, Karachi and Motorway, Lahore and seeks to reduce the existing monopolistic tendencies of the existing manufacturers by encouraging new entrants.

It seeks to enhance auto-sector’s contribution in GDP to reach 5.6 per cent and the share in manufacturing sector to 25 per cent by 2011. Likewise, the employment level has been projected to increase from 192,000 to 250,000 as direct jobs and from around one million to 2.5 million indirect jobs.

The new programme prepared by the ministry of industries and production and its affiliate Engineering Development Board (EDB), conceding that the existing industry was “working under high protection tariff” and a few manufacturers have “monopolised” the market. “The products are characterised by relative low-quality, high priced fewer models, long delivery times and poor service to the customers”.

The successor Tariff Based System (TBS) introduced last year, on the other hand, has created plus 400 tariff lines for the parts and components for the auto sector which nearly cover six per cent of total tariff lines.

This would remain a major challenge for the government negotiators on how to gain or provide market access to the partner countries in the future free trade arrangements. Final outcome of NAMA (Non-Agricultural Market Access) negotiations may also catch the industry unaware, says the plan.

It has proposed a phased reduction of tariff for the high tariff rates of localised items and the tariffs would come down by at least 15 percentage points for the localised components within five years but still remain higher than CKD (completely knocked down) tariffs for non-localised components.

As such, the tariff for vendors and manufacturers of parts and components which is currently zero for raw material, five per cent for sub-components and 10 per cent for components would be reduced to zero for all the three categories from next year. The import duty on completely built units (CBU) of cars would not be further lowered to encourage investment in the auto sector, components and manufacturing.

For localised parts of CKD cars, the tariff would reduce from 50 per cent to 45 per cent in 2008-09 and further to 35 per cent in the next two years. The tariff for CKD non-localised parts would be reduced from 35 per cent to 32.5 per cent in 2007-08 and would keep on decline by 2.5 per cent every year to 25 per cent in 2010-11.

The rate for CBU cars up to 1500cc, the tariff would be reduced from 50 per cent to zero next year (2007-08) and to be kept at that level thereafter. For CBU cars between 1500-1800cc, the current rate of 65 per cent would be reduced at the rate of five per cent annually to 50 per cent by 2010-11. For CBU cars exceeding 1800cc, the applicable rate of 75 per cent would be reduced at the rate of five per cent per annum to 50 per cent in 2010-11.

For LCVs, the tariff on CKD kits would be reduced from 20 per cent to 15 per cent at the rate of one per cent every year. However, the tariff for CBU LCVs, the rate would be reduced from 60 per cent to 50 per cent in a phased manner by 2010-11.

For two-wheelers, the tariff on CKD kits would be reduced from existing 30 per cent to 20 per cent in phased manner to 2010-1. Similarly, the tariff on CBU two wheelers would reduce to 60 per cent by 2010-11 from existing rate of 90 per cent.

For localised CKD parts of tractors and heavy commercial vehicles, the existing tariff of 35 per cent has been proposed to be reduced to 25 per cent in 2010-11.

For prime movers (up to 280 HP) the tariff for CKD would be reduced from 10 per cent to five per cent next year and then kept at that level onwards. Similarly, the tariff for CBUs would be reduced to 25 per cent next year and then kept at that level for the next five years. The tariff for prime movers (above 280HP) and would remain unchanged, while it would be reduced for trucks from 10 to five per cent and from 30 to 25 per cent next year.

The government has also proposed to allow the assembly of new entrants through import of 100 per cent CKD kit at the rate of duty applicable to non-indigenised parts. However, they would be asked to provide a commitment to develop and purchase local parts for fitment in the locally assembled cars. Some productive asset investment incentives would also be provided to the vendors and manufacturers.

The policy also envisages discouragement to the existing policy for the import of used cars and trucks. As such, the depreciation on import value of used cars would be reduced from two to one per cent per month and total depreciation limited up to 25 per cent only while transfer of residence and baggage rules would implemented strictly.

The registration of vehicles would be standardised throughout the country through a computerised system so that it is accessible on all Pakistan basis to help better data for the government, tax authorities, town planners and traffic authorities.