Pakistan government has been debating on an auto policy for the last five years or so, costing the country and its citizens billions so far. However, the policy has been finally approved after a long hiatus. The new policy could attract new car manufacturers from Europe or China thanks to some tax incentives for setting up manufacturing units in Pakistan.
The Ministry of Finance announced that the Economic Coordination Committee (ECC) has finally agreed to an Automotive policy for the next five years. The government, however, decided not to change its policy regarding car imports despite the Federal Board of Revenue’s (FBR) recommendation to allow imports of up to five-year-old cars compared to the current limit of three-year-old cars. FBR has also proposed to open imports for commercial purposes.
Miftah Ismail, Chairman of the Board of Investment, said that “The existing three car manufacturers will not be entitled to the benefits that are being offered to the new investors.” He added that the policy was aimed at enhancing consumer welfare and boosting competition in the country besides attracting new players. Ismail said that greater localisation of auto parts had been ensured in the policy and if the new entrants fail to achieve their targets, they would be penalised.
Volkswagen had demanded incentives for a medium knocked-down unit but the government removed the definition in the final policy. The government wants the manufacturers to establish fully functional plans in Pakistan.
The definition of a new entrant has also been changed in order to prevent new players from taking advantage of the incentives. It states that “installation of new and independent automotive assembly and manufacturing facilities by an investor for the production of vehicles of make not already being manufactured in Pakistan.”
Incentives
New entrants will be allowed a one-off tax-free import of plant machinery for setting up an assembly and manufacturing facility. After the ground-breaking of their projects, new car makers will be allowed to import 100 vehicles of each model in the form of completely built units (CBUs) at 50% of the current duty for testing the market demands and conditions.
A major incentive for the new investors is the reduced 10% customs duty on non-localised parts for the next five years compared to the current duty of 32.5%. For existing investors, the duty will be reduced to 30% from the start of the new fiscal year.
Another incentive is the tax reduction, 25% compared to the prevailing 50%, for localised parts. Existing manufacturers will get a 5% reduction, down to 45%, starting July.
CBU category has seen a customs duty reduction, by 10 percent for the next two years, for cars with engines up to 1,800cc. This will help in reducing car prices offered by the current manufacturers.
After a duration of five years, a single tax rate will applied to localised and non-localised parts. However, the current duty structure will continue for seven years for newcomers. The Board of Investment will offer a single point of contact for all new investors. Those planning to enter the market will be required to submit a detailed business plan and relevant documents to the Engineering Development Board (EDB) for assessment.
Incentives have been announced for the revival of sick or non-operational manufacturing units. Non-localised parts can be imported at 10% and localised parts at 25% for the coming three years when resetting a sick unit.
Reactions
There was always a chance that some of the stakeholders in the Pakistan automotive industry would not be happy with the new policy. Pak Suzuki, the largest car maker in terms of market share, calls the policy a “disaster”.
A spokesperson for Pak Suzuki, Shafiq Sheikh, said that “The government is requesting auto companies to come and invest in Pakistan. On the other hand, it is not giving equal incentives to the existing players who are ready to invest billions of rupees.”
The government and the consumers were irritated by the lack of competition in the local market and how the three Japanese manufacturers were monopolising offering expensive cars with limited functionalities and improvements each year.
On the other hand, Suzuki, has offered to invest billions in Pakistan if the government offered them the same incentives as the new entrants. The government chose to stuck with their earlier stance on promoting competition by only providing new entrants with duty discounts. This would help the newcomers in setting up and competing against the established manufacturers.
When asked whether the company was still willing to invest in Pakistan after the new policy announcement, Sheikh said “We would just request the government to reconsider the policy.”
The FBR was the lead voice opposing any move to provide equal incentives to existing manufacturers in the market. FBR said in a statement “The existing carmakers have been enjoying the protection and incentives for decades.”
The current manufacturers would be happy for the time being as the government did not increase the age limit for car imports. Pak Suzuki spokesperson said “The ECC’s decision to maintain the current three-year-old limit on used car imports is the only thing that is positive for the existing carmakers in the auto policy.”
What’s to Come
The current manufacturers will obviously not be happy with the current auto policy. They were enjoying huge profits and offering less than adequate cars. Furthermore, the current car makers failed to meet local demand and customers had to wait months to buy a car.
An effective auto policy should have caused less reaction from the existing manufacturers, helped increase employment, and helped increase car manufacturing and competition in the market in order to facilitate the average consumer.
The auto policy may have come close to the requirements but it has irked the current manufacturers. Resentment amongst the current manufacturers might put off some of the new investors as well. On the other hand, it was the need of the time, although the government could have announced a greater decrease in duties for current car manufacturers in the recent future. This would have kept them happy and the population could have enjoyed cheaper cars before the newcomers release their cars.
It’s also important to note that the current infrastructure in Pakistan will not be able to handle the sudden increase in the number of cars. If Pakistan had a better public transport system, this could have reduced the number of cars on the roads even if car sales continued to rise, like most established markets in the world.
At the end of the day, the consumers should benefit from this policy. European car makers like Audi, Volkswagen/Audi, Fiat, Renault and other Asian makers like Nissan, Hyundai, Kia, Zotye, JAC, Changan, Geely and Chery would definitely be interested in considering Pakistan as their future market. Pakistani citizens need high-quality, affordable cars and this would help in that.
It would be interesting to see what the current manufacturers will come up with to compete against the newcomers. They obviously need to improve their image amongst the consumers and time might be running out for them. We sure hope that whatever happens, the consumers and the investors should both benefit from the outcome.
Image Source: Noozz.com
That’s great, the suzuki honda monopoly is costing us a lot
Y excluding Toyota :p don’t mind
Suzuki’s main business is in India, It is obvious they will prefer to invest there not here and continue to exploit Pakistani consumer and govt.
I hate Toyota Habib worst experience. And expensive you pay 1.7 millions and even manual windows in return.
yeah, I missed Toyota
Existing players still need incentives? They are sucking our blood and money since long, so there shouldn’t be any single incentive for existing monopolists.
“Current Manufacturers Not Happy” means there is something good for customers. That’s great.
Good news and the existing companies monopoly will no more to implement
Down with these thieves. They have been sitting there for 30 odd years, looting our money and giving crappy, technologically obsolete models in return. How can they even talk about bringing investments when they hadn’t even transferred an iota of manufacturing technology to the country and continue to just assemble. This auto policy should knock some sense into them. If not they can wrap up their operations here and take their dabba Mehrans and Corollas with them.
Finally. now we get to see some other brands. i hope europeans make huge investments and start manufacturing. Then these corollas and civics will have to reduce their prices greatly and we can see the end of mehran!
Bad news, Suzuki wanted to continue with the Mehran and the Bolan . Now what ?
They’ll import new car?
Tbh Toyota & Honda are still somewhat value for money but Suzuki is so crappy company that I have never seen their cars being the first choice of anyone anywhere in the world. So, basically Na-Pak Suzuki is kind of doomed, else they come up with some value for money cars. Even FAW V2 is much better than the best models offered by Suzuki.
Toyota and Honda are TOO expensive for the student-class and other categories which fall in the budget sector … people who are looking for cars UNDER 3 Lakhs !
and to our disgust , there’s NONE for that price bracket! WE NEED CARS TO BE SOLD UNDER THE BUDGET CATEGORY TOO !
we need cars costing about 1.5 lakhs to 3 lakhs ! not just the 6.5 lakh mehran which is a HORRIBLE piece of CRAP and over priced !
so tbh , atm no one’s thinking about the budget category. if the newcomers manage to penetrate that budget sector … they’ll be madly successful here !
perfect analysis indeed Yasir. I wish vw could capture tht market. their cars are awesome
Thanks :)
VW can target the budget sector with a car that has been popular with pakistani’s a few generations ago … known as the Beetle :) . Right now they’re making the Beetle A5 , a newer version of the classic two-door car , but if they’re made entirely locally in a few years time , we could have them super cheap.
Bhai article buhat bada hai, koi aasan lafzon main samjha sakta hai ke in sab ka matlab kia hai?
In easy words …
1. the Big 3 automakers have received a punch in their guts … they’re still reeling from the effects :D
2. New automakers from Europe and China are looking to enter the market to offer cars more suitable to the safety and economic requirements of the public.
2.5 . Govt is offering the newcomers tax discounts and the like to help them establish their plants. this means most renowned brands will now have cars “Made In Pakistan” and hopefully SOLD in Pakistan at a reasonable price too !
3. its time to get hyped!
Aap ka buhat buhat shukriya Muhammad Yasir bhai, itni aasan andrezi main samjhane ka. Allah aap ko jaza-e-khair dey…
Shukria :D
The existing manufacturers are not happy because they have had their field day for many years exploiting their privilege and looting customers. For the public, this is obviously great news if it gives us more variety, better quality and more affordable cars.
خبر میں حکومت کو ذلیل بھی کریں ….. ضرور راحیل شریف نے مداخلت کی ہو گی ****** شکریہ راحیل شریف
Thanks GOD finally it came. Existing players were sucking our blood for years. Compare TATA NANO price with SUZUKI MEHRAN.
EXACTLY MAN !
we don’t have a car in the budget category YET … the local market starts from mid-range priced cars :/ !
Toyota, Honda and Suzuki need to be sued by Pakistan govt;
1. For not transferring tech into Pakistan for all these years and still importing most of the stuff.
2. Playing with consumer lives by providing cars with no /limited safety features.
3. Toyota should be stripped of all its cash for not including immobilizer in its cars, since it’s one of the most stolen cars in Pakistan.
4. For charging us the same rates as they charge in the US/UK etc and still not providing the same features they offer in those countries.
Screw Toyota, Suzuki and Honda.
If it was a western country they might had to leave the market due to this kind of activity.
But what do you expect when locally made part is taxed 45%?
Let’s hope we don’t offer new entrants the same attitude of parts availability local mechanics and low resale after all kia and Chevrolet has left the market once already and more names to mention
The safely features (or the lack of) in current models of locally manufactured Suzuki cars is shocking. I have had bad experiences with a Suzuki bolan and Suzuki Mehran that my family owned. Both cars had multiple incidents of short circuit fires due to bad insulation of wires. In the latest incident of short circuit a few weeks back, my brothers Mehran totally burned down. He was lucky, by the will of Allah, to get out of the car on time.
Other than safety features, Suzuki has not bothered to update their models for as long as I can remember and have been just changing the appearance of head and tail lights every few years. I hear that the latest model of Mehran these days is around 6.75 lac!. Kia in cars ki yeh auqaat hai? 6.75 Lac really?
Yes, these companies need to be treated with a medicine called “competition”.
The safely features (or the lack of) in current models of locally manufactured Suzuki cars is shocking. I have had bad experiences with a Suzuki bolan and Suzuki Mehran that my family owned. Both cars had multiple incidents of short circuit fires due to bad insulation of wires. In the latest incident of short circuit a few weeks back, my brothers Mehran totally burned down. He was lucky, by the will of Allah, to get out of the car on time.
Other than safety features, Suzuki has not bothered to update their models for as long as I can remember and have been just changing the appearance of head and tail lights every few years. I hear that the latest model of Mehran these days is around 6.75 lac!. Kia in cars ki yeh auqaat hai? 6.75 Lac really?
Yes, these companies need to be treated with a medicine called “competition”.
That’s a good news. Suzuki should be banned. New companies like KIA, NISSAN and FIAT should come to Pakistan as they have some nice cars. Look at NISSAN SUNNY, KIA SPECTRA and MITSUBISHI LANCER in Pakistan. Those cars are still much better than Corolla and Honda.
and if the new entrants fail to achieve their targets, they would be penalised…………….. bhai pehle yeh to batao suzuki, toyota aur honda ko kis ne penalise kia tha jo naye logon ko karein gai?
Have any one idea when will the end user will get the benefits of this policy?
2 years minimum…
It’s time for 3 blood suckers to lower their rates by some lacs.
I would love to see VW, Renault and Geely cars at an affordable rate.
Ye pakistani hukamran mafia gang hain sirf apna hi faida sochte hain.gareeb ka koi nahi sochta.hum se to achy india waly hain.35 compnies india mai gariyan bana rahi hain aur har kism ki gari mil jati hai india mai aur wo b sasti aur full option mai.2 lakh se le kar jitny ki marzi gari le lo apne budget ke hisab se.
http://www.cartrade.com/new-cars
ye link kholo aur dekho india mai kitni sasti gariyan hain.aur pakistan mai sirf 3 compnies gariyan banati hain.wo b international myar ki nai.na air bag na fuel ki bachat aur na power window aur na alloy rim.pakistani gariyo wlay to pakistani awam ko loot rahy hain.itni mehngi gari aur itna ghatya interior.ab suzuki mehran ko hi dekh lo pichle 27 sal se chal rahi hai aur pori dunia mai sirf pakistan mai chal rahi hai aur 27 salo mai iska kuch nai badla sirf keemat hi bari hai.
itna ghatya interior aur itni ziada price.na is mai air bag hai na abs brakes aur na fuel ki bachat.
pakistani koi b gari international myar ki nahi.india aur china mai itni sasti gariyan hain aur pakistani 3 sary 3 lakh mai gari mil jati hain aur wo b full option wali.
aur pakistan mai mehran sab se sasti hai aur wo b 7 lakh ki hai.akhir kab tak hum aesy pasmandagi ki zindagi guzare ge.
govt ne import japanese gariyo pe itny taxes lagay hain.na to ye khud achi aur sasti gari banaty hain aur na sasti gari bahar se any dete hain.import gariyo pe itni ziada custom duty hai ke gari ki keemat se ziada us pe custom hai.govt sasti gariyan banay ya phir custom duty khatam kar de take gareeb admi b bahar se sasti gari mangwa sake.
Suzuki is selling their garbage in the price of Toyota yaris. And they said the new Auto Policy is disaster.