INP-WealthPk
Auto Policy 2021-26 Aims to Make Pakistan Hub of Competitive Manufacturing
April 01, 2022
By Muhammad Asad Tahir Bhawana ISLAMABAD, April 01 (INP-WealthPK): The long-awaited Auto Industry Development and Export Policy (AIDEP), 2021-2026 has been unveiled this month which outlines various objectives and incentives to make Pakistan a hub for competitive manufacturing of auto parts and vehicles for local use and export. The policy includes the objective to enhance affordable mobility in the society by strengthening the auto sector's competition and innovation capabilities. It also includes the objective of increasing the exports of vehicle parts. The policy set the target to manufacture 650,000 cars /LCVs/SUVs, 100,000 tractors, 200,000 HCVs, and 7 million 2-3 wheelers per annum. Worldwide, automobile manufacturing uses a wide range of technologies, including fossil fuels, electric, hybrid, and hydrogen fuel cell technology, etc. The Pakistan government is committed to supporting all environment-friendly and fuel-efficient technologies. As a result of EDB's notification dated September 5, 2019, No. 2(48)/2018-LED-II announcing the task of formulating policy to promote electric vehicles, extensive stakeholder consultations have been conducted. Initially, however, only the recommendations related to electric vehicles of the 2-3-wheeler and HCV type were accepted. In addition, the inter-ministerial committee approved the incentives for four-wheelers, whereas the incentives for hybrid vehicles were announced a bit later in the Finance Bill 2021. The main objectives of EVs (electric vehicles) and new technologies include promoting industrial growth, encouraging auto-related industries, mitigating climate-related negative impacts, employment generation, and decreasing the current account deficit by decreasing the share of oil imports through shifting to fuel-efficient technologies. Custom duty on EV-specific parts is 1% including battery, motor, converter, charger, till the end of the policy period, i.e., June 30, 2026. Sales tax to be fixed at 1% for locally manufactured 2-3 wheelers will be reviewed periodically, i.e., once in a year in consultation with stakeholders. Sales tax at import stage waived off for electric 2-3 wheelers will be reviewed periodically once in a year in consultation with stakeholders. Moreover, a custom duty of 1% will be charged on the import of all parts of heavy electric vehicles, including busses and trucks, and a sales tax of 1% will be charged at locally manufactured electric buses and trucks. And the custom duty on imports of electric busses is also 1%. General incentives On CKD (completely knocked down) manufacturing of EVs, the ACD (additional customs duty) will be 0%. Plant and machinery for the manufacture of electric vehicles are duty-free. A 1% CD will be charged on imports of EV chargers, and a 0% CD will be charged on local imports. EVs (both imported and locally-made) will no longer be subject to sales tax. The incentives for hybrid cars Hybrid technology is common in many developed countries. To promote hybrid technology in Pakistan, the AIDEPA 2021-2026 includes the following incentives. Parts of hybrid cars can be imported with just 3% customs duty and sale tax for both locally manufactured and imported vehicles, both SUVs, vans, and LUVs, will be 8.5%. Tariff plan under AIDEP During the term of this policy, motorcycles and tractors are expected to be brought under a normal tariff regime after consultation with relevant manufacturers. Additionally, by the end of the AIDEP period, i.e., on June 30, 2026, other sub-sectors of the automotive industry would be considered to move to a normal regulatory regime. Stakeholder consultations will be conducted by the EDB under the AIDEP, and every effort will be made to move to a general tariff regime after the end of the AIDEP in 2021-26. NEW product policy The AIDEP has envisioned new product policies for small cars, tractors, and motorcycles. Meri Garri Scheme (promotion of small cars, vans, LCVs) is a new scheme, which is included in this policy to promote light commercial vehicles and fuel-efficient vehicles. Under the new product policy, custom duty will be charged 30% on local parts and 15% on non-local parts for three years. All vehicles up to 1000cc are included in the scheme. In addition, sales tax is reduced to 12.5% at the sales stage. Promotion of local part manufacturing The AIDEP promotes the indigenous manufacturing of parts, assemblies, and sub-assemblies to rationalize imports. In this regard, the local value addition requirement has been fixed at 30% for parts manufactured under SRO.655(I)/2006 except for the engine, gearbox, and transmission parts. To promote local manufacturing, duties on imports shall be rationalized under SRO.655(I)/2006. Additionally, credits are proposed for designs, manufacturing tools, molds and dyes for local manufacturing of parts, products, and vehicles. Export promotion The next consignment of CKD kits may be imported duty-free through the WeBOC system for every vehicle exported. All locally manufactured raw materials and components may be imported. Similarly, the import of vintage cars, refurbishment and exports may be allowed duty-free. Other incentives The policy also comprises some other incentives, including consumer welfare by introducing online resources, promotion of local cars by providing incentives, promotion of manufacturing of specialized vehicles (fire-fighting vehicles, refrigerated trucks, oil tankers, dumpers, etc.), and provision of consumer protection, quality, and monitoring mechanism through different sources. Auto Industry Development & Export Committee (AIDEC) A commission named Auto Industry Development and Export Committee has been constituted to review and monitor the objectives of the AIDEP 2021-26 under the chairmanship of the CEO of the EDB. The AIDEC shall conduct regular dialogue and effective communication with the industry and encourage public-private partnership for sustainable development of the auto sector.
