Pakistan has been practically without an automobile policy for almost two decades. The three assemblers that entered the market in the early 1970s continue to call the shots in the market even though their protection under the World Trade Organisation ended in 1995.

The work on a comprehensive automobile development plan was initiated in the early 2000s following the end of the so-called deletion programme in 1997. While fresh entrants to the market remained virtually blocked, successive governments kept on tampering with import tariffs for used vehicles to ease consumer difficulties.

The cycles of capacity under-utilisation and reports about hidden premium money on locally assembled vehicles have been accepted at the policy level as facts of life.

The ‘brief cases’ of some automobile manufacturers are often mentioned in one way or the other whenever slight changes to import and export schemes and taxation crop up, normally at the time of federal budget.

A draft of the automobile development plan finalised in 2006 remained pending with the ministry of industries, Board of Investment and the engineering development board, awaiting decision. Now, an updated draft of the five-year development plan for the auto sector is expected to come before the Economic Coordination Committee of the Cabinet in a couple of days.

The ministry of industries is proposing limiting advance payment at 25-50pc, with car delivery time of no more than three months, in addition to ensuring discount payments to customers in case of delayed delivery at market-based interest rates

The people deserve value for the money they pay for their vehicles, including safety standards. So far, consumers’ protection and well-being has been the last priority of the automobile industry, and the cars rolled out here are of far poorer quality when compared with those in Pakistan’s neighbourhood.

On top of that, customers have to make upfront payments along with taxes and duties for vehicles that are delivered months later. A consumer being charged a retrospective tax, for a non-existent product or service, poses serious ethical and legal questions. But these issues are seldom taken up by the government, regulators and courts.

Meanwhile, customers are also bound to pay further if the assembler decides to increase the cost of parts owing to currency depreciation during the period between the booking and the delivery of the vehicle, even if these parts had been lying in the inventory. And the people are hardly ever given the benefit of currency appreciation.

Moreover, theft of brand new cars has been rising in the absence of any attempt by the manufacturers to introduce safety instruments like immobilisers.

There is also no well defined policy for rolling out new models, and in some cases, virtually the same models keep coming on the roads for decades.

For the short term, the ministry of industries is proposing limiting advance payment at 25-50pc, along with a firm commitment of delivery time of no more than three months. The remaining payment would be made on delivery of the vehicle by the dealer. It has also proposed ensuring discount payments to customers in case of delayed delivery, at market-based interest rates.

The ministry also wants to enforce safety regulations and introduce time-bound restrictions on manufacturers and assemblers over phasing out older models and rolling out fresh ones, in addition to the installation of immobilisers and putting in place a product recall mechanism for faulty production, in line with international best practices.

For the long term, the government wants to continue with zero-duty on raw materials of auto parts to encourage local production. It also wants to increase the duty on sub-components and components from the existing 5-10pc to 10pc for five years, and keep the duty on sub-assembly unchanged at 20pc.

Another proposal is to do away with the existing 32.5pc duty on imported completely knocked down (CKD) units and set it at 45pc for the first year, 40pc for the next year and 35pc for the remaining three years to avoid a sudden jolt to the local industry.

The plan says all incentives, facilities and tax exemptions available under the special economic zones act — including 100pc exemption from custom duties and taxes on the import of plant, machinery, equipment and tooling such as dies, moulds, jigs and fixtures for production, inspection and testing of vehicles — shall be available to all A-category investors.

The completely built unit (CBU) rates have been retained on all categories of passenger cars to provide a level-playing field to indigenous industry vis-a-vis regional countries to encourage new investors to invest in a country whose industry is adequately protected against imports.

The import duty rate on non-localised parts would also be lowered to gradually improve indigenous competitiveness. A uniform CBU rate of 50pc has been set for two- and three- wheeler segments to rationalise the tariff structure. The import duty rate on non-localised components for assembly of 2/3-wheelers would be rationalised for the entire segment and fixed at 15pc.

New descriptions with regards to technology — Euro II and above (and below) — have been defined in the tariff system for tractors. A CBU rate of 20pc has been maintained on regular buses to provide their manufacturers adequate protection against imports.

Published in Dawn, Economic & Business, October 20th, 2014