ISLAMABAD: The auto industry has lauded the government’s initiatives of relaxing taxes and allowing new technologies in the auto industry, as the government has promised to accept various demands of the local auto sector while framing the new auto policy.
According to sources, the government has almost finalised the upcoming auto policy (2021-26), which was becoming a contentious issue among various stakeholders. Unlike the previous auto policy, interventions taken by the government in the new policy will not only increase the market size, but also encourage OEMs to bring in new technologies like Hybrids (HEV) and Plug in Hybrid Electric Vehicles (PHEV) in the domestic market.
According to reports, the industry was advocating for reducing very high taxes on locally produced vehicles, with 30 per cent Customs Duty, 7pc to 15pc Additional Customs Duty (ACD) on parts and subcomponents together with 17pc Sales Tax and up to 7.5pc FED at retail stage, the cumulative tax on locally produced vehicles was as high as 40pc of their retail selling price.
The government was cognizant of the fact that such high taxes are choking the demand and not conducive for the growth of the industry.
The ADP (2016-21) policy envisioned local vehicles production of 350,000 units by 2021 whereas the demand currently stands at less than 230,000 units including volumes of new entrants which is not very encouraging. With several new entrants entering the market due to lucrative policy incentives, the industry now has installed production capacity of well above 500,000 units per annum.
According to Pakistan Automotive Manufacturers Association (PAMA) Chairman, Ali Jamali, the government has decided to rationalise some of the taxes in the new policy which will make locally produced vehicles more affordable, thereby improving the demand and also help in maximising the industry’s installed capacity utilisation.
“The industry is extremely appreciative of the government’s decision to reduce duties and taxes on locally produced vehicles which shall help spur growth in the industry,” he said.
Sources in the industry informed that the government has decided to reduce ACD from 7pc to 2pc and FED by 2.5pc across the board. In addition, GST on small vehicles of up to 1000 cc has been reduced to 12.5pc from 17pc which will give major relief to buyers of entry level vehicles.
The Ministry of Industries is talking with all players to ensure that this duty and tax reduction should translate into equitable price reduction for the consumers.
Furthermore, the most promising aspect of the new policy, which is being welcomed by the entire industry, is the government’s decision to encourage all new technologies including, Hybrids (HEV) and Plug-in Hybrids (PHEV) vehicle production in Pakistan.
Moreover, recognising the fact that hybrids are established technology globally which can help achieve government objectives of reducing emissions whilst conserving fuel, the government wants industry to introduce this technology at the earliest.
Upcoming policy includes incentives for PHEV and HEV local production by allowing its specific parts at 3pc and 4pc customs duty respectively. In addition, the GST for both PHEV and HEV would be 8.5pc, same as being given to HEV CBUs. Duty structure for non-localised and localised parts for HEV remains the same at 30pc and 46pc, respectively, for existing players.
Earlier the government allowed incentives for electric vehicles whose specific parts are allowed at 1pc Customs Duty, non-localised parts at 10pc and localised parts at 25pc and GST at 1pc.