The government has showered auto assemblers with a number of incentives like a cut in the Federal Excise Duty (FED) by 2.5 per cent, additional customs duty (ACD) from 7pc to 2pc and general sales tax (GST) to 12.5pc from 17pc on cars up to 1,000cc. Consumers have recently witnessed price cuts of Rs11,000-400,000 on different engine power vehicles.
Industry people believe that the cut in duties and taxes in Budget 2021-22 is an integral part of the new Auto Development Policy 2021-2026 and some more relief measures are on the cards when the new auto policy will be unveiled.
Chairman Pakistan Automotive Manufacturers Association (Pama), Ali Asghar Jamali said the industry is extremely grateful to the government for duty and tax rationalisation that will certainly help grow industry volumes and in the process create more jobs — as the auto industry has the highest job multiplier effect.
“We are optimistic that through increased volumes the industry will generate more revenue for the government, create more jobs and increase economic activity in the country,” he said.
He said car and sports utility vehicle (SUV) sales would increase in 2021-22 after cuts in duties and taxes as almost all players have reflected the decrease in their prices. “Together with lower interest rates, growing remittances and a stable exchange rate and economy, demand should remain healthy for vehicles,” Mr Jamali said.
‘As volumes grow from 250,000 to 500,000 units, at least one million new jobs will be created by the auto industry alone which augurs well for the present government’
On new job creation on possible rising sales of cars and SUVs in 2021-22, he said every incremental vehicle made and sold locally creates at least five to six jobs i.e. one new job by assemblers, two to three jobs by the part makers and rest in the value chain with the dealers for sales/after-sales support and with the logistics/transport companies.
The Indus Motor Company CEO said, “as volumes grow from 250,000 to 500,000 units, at least one million new jobs will be created by the auto industry alone which augurs well for the present government.”
Amid challenges, the government has balanced out revenue and expenditures whilst giving adequate stimulus to the industry to grow, he added.
The IMC top executive said the policy interventions are well deliberated as the main focus for the government is to grow the industry volumes by making cars more affordable, particularly for entry-level/eco-car buyers and at the same time encourage environment-friendly technologies like hybrids.
Mr Jamali urged the government to ensure continuity in policies so the industry can invest without any fear of policy change.
When asked whether the budgetary measures are satisfactory, he said the auto policy regime is very complex to navigate so there is always a possibility of inadvertent errors and omissions. Two such cases have been identified by the industry — one being the 2.5pc FED reduction on double cabin pickups/light commercial vehicles (LCV) which was missed out and the second was the inclusion of part makers for ACD reduction from 7pc to 2pc.
Both omissions have been communicated to the government and the industry has been given assurance that both would be rectified soon, he said adding that the dialogue/process of policymaking was absolutely transparent aimed at growing the industry.
The overall policy direction is to grow the industry volumes to 500,000 units in the next few years as well as making hybrid vehicles production viable, the IMC CEO said. This is a practical approach by the government to gradually electrify the vehicles and allow local customers to be accustomed to hybrids, he added.
Another major focus of the policy, he said, is to gradually encourage auto parts exports which would help part makers in a big way.
Chairman Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam), Abdul Rehman Aizaz said “most of the tariff measures have already been accommodated. Only a few additions related to tariffs are expected with the policy.”
He said a few more adjustments, such as a waiver for ACD on raw materials imported under statutory regulatory order (SRO) 655, measures for export promotion of parts and vehicles, targets for capacities and production during the policy period, implementation targets for safety standards, easy and attractive financing through State Bank of Pakistan for buying cars under 1,000cc, etc, will be announced.
“By and large pro-growth budgetary measures are taken. We appreciate the initiative and are confident that the Federal Board of Revenue will end up with a higher collection of taxes from the auto sector despite cuts in taxes,” he said.
On market reports that ACD has not been cut on raw materials being imported by auto parts makers, Mr Aizaz responded Paapam has requested ACD on sub-components imported under SRO 655 to be decreased to zero. It holds little logic to charge 2pc, 4pc and 7pc ACD on raw material whereas ACD on imported parts of cars (completely knocked down) and light commercial under 1,000 cc has been reduced to zero and on over 1,000cc segment reduced to 2pc.
“We have taken it up with the government and are very hopeful that ACD on raw materials for all segments including motorcycle, tractors and heavy commercial vehicles will be reduced to zero in the upcoming auto policy,” he said.
On job creation given the possible rise in cars and SUV sales, he said about eight jobs are created on sale of every locally made car. “We expect an uptick of around 50,000-80,000 cars in 2021-2022 so employment growth is expected in the range of 0.4 to 0.64 million. Tractor and motorcycle segments are also growing, so further jobs will be generated in these segments as well,” Paapam chief said.
When asked why the government has not taken any measures to provide any relief to the two-wheeler buyers as bike prices have increased more rapidly than the car segment, he said “presently we are living in a very volatile and uncertain era.” Motorcycle prices have increased due to an unprecedented jump (over 100pc) in raw material prices like steel, copper, aluminium and plastic resins within a year. This is an international phenomenon.
“In such circumstances, we request the government to cut down the additional customs duties on motorcycle CKD and raw materials imported under SRO 655 for manufacturing parts.” ACD has been reduced to zero on CKD of cars under 1,000 cc to facilitate the middle-class buyer of small cars. “Motorcycle users should be given at least the same/matching incentive in ACD as given on cars under 1,000cc,” he urged.
Published in Dawn, The Business and Finance Weekly, July 19th, 2021