Auto Policy Incentives for New Market Entrants Being Blocked

To power up  the automobile industry of Pakistan for the foreseeable future, all eyes are on the unveiling of the new Auto Policy. The new Auto Policy envisions the entry of new car manufacturers with governmental support and incentives, so that consumers have more choices. To break the monopoly of existing market players, the new policy planned to introduce various incentives for old and new car makers in Pakistan. However, it looks like preferential incentives for new foreign firms might be blocked / challenged in order to preserve the status quo for the foreseeable future.

The Entry of New Automobile Makers In Danger?

According to various media reports, Volkswagen and Audi were looking to establish a solid presence in Pakistan. However, the dense network and influence of existing car assemblers has prevented the government from inviting foreign companies. The primary reason given here was because of the tax incentives been offered to new players.

In order to make existing companies more amenable to their requests, the Ministry of Industries and Production on Monday presented a revised automotive development policy for approval of the Economic Coordination Committee (ECC).

At the 11th hour, the Water and Power Minister Khawaja Asif, stopped the ECC from approving the summary. The Minister pointed out several reasons why the summary should not have been approved, with Board of Investment Chairman Miftah Ismail not being present at the meeting being one of them. Additionally, The Ministry of Industry’s summary was different from what had been agreed at the committee level, prompting Khawaja Asif to call off the decision.

It is definitely a sad state of affairs because it is the second time in the last seven months that the ECC could not reach a conclusion.

New Automotive Policy Languishing Since 2013

During October 2013, the ECC decided to form a committee in order to propose a new automobile policy. Unfortunately, existing companies are still dissatisfied despite the fact that they also had some of their demands and benefits addressed satisfactorily in the agreement.

Given below were the new elements that the committee decided to implement:

Deletion of Category C: Offering same tax benefits to existing players. It was also agreed that the definition of Category A that offers incentives to the new manufacturers should be slightly revised and be replaced with the words ‘new brand’ so that the existing companies do not get tax benefits.

Revision of Category A: It was also agreed that the definition of Category A that offers incentives to the new manufacturers should be slightly revised and be replaced with the words ‘new brand’ so that the existing companies do not get tax benefits. Due to

Due to additional delay in approving the new policy, existing assembling companies are going to receive additional benefits. According to BoI Chairman Miftah Ismail, he suggests positivity that the new policy is going to be approved this month and support foreign brands as well:

“We will make sure that the new policy is approved within this month, which will also offer a level playing field to the investors.”

However, it looks like German automakers will see this policy against their objectives since Volkswagen is eager to do business Pakistan, but without a leveled playing field, it looks like they will quickly pack their bags and look for a new region to set their sights at.

FBR has criticized the existing players for availing concessions for the longest period of time as well as questioned their technological advancements in producing vehicles. Naturally, in comparison, companies such as Volkswagen and Audi possess better resources, technology and expertise, and it is also possible that they will be able to shed light on the production of cars in a cost-effective and efficient manner, provided the policy also has the interests of new market entrants in mind too.