EDB prepares auto draft policy 2015-20

• Proposes govt to restrain car manufacturers, assemblers from getting 100 per cent amount in advance, Wants discount for customers in case of late delivery
• Recommends measures for development, enforcement of safety regulations in all cars, installation of immobilisers, product recalls in line with global practice

The Engineering Department Board (EDB) has finalised the draft for new automotive development policy for the next five years, 2015–2020, in which it proposed to the government to restrain car manufacturers and assemblers from getting 100 per cent amount in advance at the time of booking and in case of failure to deliver car in two months’ period, customers be given discount.

In the draft for automotive policy, the EDB said, “Amount of advance payment shall be limited up to 50 per cent of the total price, while the price and delivery schedule, not exceeding two months, shall be firmed at the time of booking. Any delay over two months shall result in discount at KIBOR+2 per cent, prevailing on the date of final delivery/settlement from the final payment. This will help shorten delivery lead time.”

It further said that “there was no model phase out policy and as such vehicles’ models older than 20 years are still being produced, whereas these older models have long been phased out globally due to technology obsolescence”.

The draft said there was no institutional mechanism to address consumer welfare and feedback, as vehicles’ manufacturers do not take note of any complaint made by a consumer about quality, safety and frequent escalation in car prices. Therefore, the EDB in the draft, recommended measures for the development and enforcement of safety regulations in all cars, compulsory installation of immobilisers by the OEMs, and product recall system in line with the global practice.

The draft also made recommendations for the development of introducing brand, development a market niche and share, for creation of distribution and after-sales service networks and development parts manufacturer base. It proposed that all incentives, facilities and tax exemptions available under the special economic zone act shall be available to all category-A investors, including 100 per cent exemption from custom duties and taxes on the import of plant, machinery, equipment and tooling such as dies, moulds, while investors shall be entitled to import of non-localised parts at 10 per cent rate of customs duty and localised parts at 25 per cent duty for a period of four years in respect of passenger cars and LCVs from 800 cc and above.

For the motorcycle industry, the EDB said, existing policy as approved by the ECC and notified by the FBR vide SRO 939(I)/2013 and SRO 940(I)/2013 shall continue. However it proposed that a new investor shall be required to submit a detailed business plan and relevant documents for manufacturing of vehicles to the EDB for assessment. The EDB shall then determine eligibility of the applicant under the defined criteria to be declared as an investor in any of the three categories. The Ministry of Industries and Production on the recommendation of the EDB would approve the investor under the relevant category. The AIDC and EDB would review results of the investment policy once every two years and shall recommend modification(s).

Proposed Tariff Roadmap for Auto Sector:

“CKD rate of duty of both localised and non-localised shall be unified into a single rate of duty after five years of policy period and kept as prevailing rate of duty of localised CKD at that time. However, present duty structure shall continue for seven years for new investor and five years for existing players who opt to come under category-A investment”. The proposed tariff structure for five years policy period is as: The CBU duty rates have been retained on all categories of passenger cars to provide a level-playing field to indigenous industry vis-à-vis regional countries. This will also encourage new investors making decision to invest in a country where their vehicles are adequately protected against imports. The import duty rates on localised and non-localised parts have been lowered to improve indigenous competitiveness. A uniform rate of 20 per cent on CBU of prime movers of all categories ie, up to 280 HP and above has been fixed to rationalise the tariff structure and avoid ambiguities and mis-declaration.

On the same analogy, a uniform import duty of 5 per cent on components for assembly of prime movers has been fixed so as to facilitate low-cost assembly of vehicles.

A CBU rate of 20 per cent has been maintained on regular buses to provide manufacturers of these vehicles adequate protection against imports. The CNG category of buses has been supplemented with LPG/LNG/HEVs to promote such vehicles because of environmental considerations.

A uniform CBU rate of 50 per cent has been fixed for the two and three-wheel automotive segments to rationalise the tariff structure.

The import duty rate on localised parts is gradually being lowered so as to provide the industry a predictable roadmap for upgrading technologies and attaining competitiveness.

Import policy for used vehicles:

Although Pakistan’s Import Policy Order, 2012–15, contains a comprehensive policy for the import of used vehicles, its implementation has been made complicated due to several import schemes issued at different times, and frequent changes in the parameters of these schemes. The schemes, meant for specific segments of beneficiaries, have been turned into free-for-all instruments of import with serious impact on the local industry.

The draft policy said, “Pakistan’s Import Policy Order, 2012-15, does not allow import of used cars into the country by individuals or businesses.” It does, however, allow expatriate Pakistanis to bring cars up to three years old to Pakistan on reduced duty under the following schemes, which are meant for individual benefit rather than a commercial activity.

The used-car can be imported under personal baggage once in two years per family on transfer of residence from another country, or as a gift to a family member residing in Pakistan once in two years.

These schemes are meant to facilitate overseas returning Pakistanis who are entitled to avail the benefit of reduced duty on import of cars which have remained under their personal use. These schemes, however, have been misused by unscrupulous elements that transformed them into a commercial activity.

During 2011-12, used-cars imports dealt a major blow to the cars and SUVs sector, reaching unprecedented figure of 57,000 cars due to relaxation in age limit from three to five years. Such high imports not only have a negative bearing on the OEMs by way of taking away a major chunk of the market share, thus affecting their capacity utilization, but also adversely impacted the indigenous vendor industry by reducing demand for locally made parts and components. In order to keep the auto sector afloat, the government reduced the age limit of imported used cars from five to three years, which resulted in a decline in imports of cars to 45,000 units in 2012-13 and to 29,000 in 2013-14.

According to the draft policy, import of all types of vehicles shall be regulated through the used vehicles import policy (2015-20) under which the used vehicles shall only be imported into Pakistan through the personal baggage scheme, transfer of residence scheme, gift Scheme.

The Federal Board of Revenue (FBR) shall issue yearly schedule of import duties of all type of vehicles in US dollar terms on June 30 each year. In this context, no relaxation regarding age and applicable duty shall be granted under any circumstances. The Ministry of Commerce shall define SOPs under the import policy order for used cars to prevent the misuse of the facility. The above policy does not preclude import of brand new CBUs by individuals other than expatriate Pakistanis on payment of prescribed import duty.

Keeping in view the Pakistan-China Trade Corridor and other mega projects like Lahore-Karachi motorway, it is envisaged to corporatise the trucking sector by incentivising fleet operation schemes through allocation of dedicated funding by the State Bank of Pakistan/ IFI’s with reduce interest rates to enhance volumes of the industry and enable it to absorb fixed cost to reduce overall cost.

Meanwhile, All-Pakistan Motor Dealers’ Association (APMDA) Chairman HM Shahzad said that the policy draft was a big disappointment as far as the used-cars sector was concerned. In a nutshell, there was no change from the last policies regarding the imports of used-cars/ vehicles.”

He said the government should regularise this trade which was necessary for the sake of transparent trade and to improve the circle of tax net. He said the government had always been giving incentives to local assemblers who had always responded by increasing prices and localisation was almost frozen after the TBS.