The Automotive Development Policy (ADP) 2016-21 has expired, giving way to the new developments and incentives under the Automotive Industry Development and Export Policy (AIDEP) 2021-26.
Earlier this year, the government announced a series of tax exemptions for carmakers in Pakistan in the interest of strengthening and ensuring the growth of the industry. The AIDEP 2021-26 focuses on enabling the local car industry to shift to complete local manufacturing for added viability and sustainability.
The Ministry of Industries and Production (MoIP) presented the policy before the federal cabinet earlier today, which approved the propositions made in the AIDEP 2021-26 which will ensure further development of the Pakistani car industry. As per an official document available with ProPakistani, here are the salient features of the policy:
Following the lapse of the previous auto policy, no new entrants were given the benefits after June 30, 2021, except for a select few who were provided relief to launch the following products:
As per the analysis from the Ministry of Industries and Production, the new products are not likely to observe an increase in imports in the next year due to time lag in investment. This implies that there will not be any short-term ramifications of the policy on the current account balance.
The AIDEP 2021-26 lays a particular emphasis on the localization of auto-parts and plans to expand on it in the near future. According to the document, the current rate of localization is as follows:
Sector | Localization Level Achieved | Top 10 Localized Parts [SRO 693(I)/2006] | |
Number of Parts | Value of Parts | ||
Motorcycles | 95% | 85% | Crank Case, Crank Shaft, Piston & Ring, Magneto, Suspension, Transmission, Engine Head, Engine Block, Wiring Harness, Body Parts. etc. |
Tractors | 92% | 80% | Transmission, Crankshaft, Piston, Connecting rod, Engine Valves, Engine Block, Starter Motor, Body parts. etc. |
Cars | 55% | 45% | Suspension, Steering Knuckle, Brakes, Light Springs Leaf, Radiator, Steering mechanism, Windscreen, Body parts, etc. |
Truck & Buses | 15% | 12% | Exhaust/Inlet Manifold, Front Cabin, Wiring Sets, Radiator, Heavy Spring Leaf, Silencer, Cross Members, Floor Assembly, Body parts. etc. |
It was also highlighted that Pakistan will be able to save a massive amount of foreign exchange in Completely Knocked-Down (CKD) production:
Serial No. | Description | Value in USD |
1 | Cost of Completely Built unit (1500 cc ) | 22,000 |
2 | Cost of Imported CKD | 8,000 |
3 | Cost of local parts = USD 9000 Less 30 % value addition/local content = USD 6000 approx | 6,000 |
4 | Difference between CBU & CKD =22000-14000 (CBU import 36 % higher than CKD manufacturing ) | 8,000 |
5 | Average cost of CBU=14000 x 300,000 (if total requirement is imported) | 4.2 billion |
6 | FE saving if manufactured locally = 36% of 4.2 billion | 1.5 billion |
Keeping with the interest of indigenizing the production of vehicles, the AIDEP 2021-26 also entails the “Make in Pakistan Initiative” that entails the following:
A point of contention among the Pakistani car buyers, consumer protection has been a long-debated issue among the car buyers. The AIDEP 2021-26 seeks to address the said concern by adding the following clauses:
The government will impose heavy penalties on carmakers who delay deliveries for more than 60 days. The fines shall amount to 3 percent of the vehicle’s price plus KIBOR. The clause has been added to bridge the demand and supply gap and eliminate ‘own money’ issue.
The government will impose an extra tax of Rs. 50,000 to Rs. 200,000 at the time of registration, if the motor vehicle is sold prior to registration by the original purchaser.
The government will ensure the formulation of a committee under the chairmanship of the MoIP secretary. The committee will incorporate representatives from the Engineering Development Board (EDB), Ministry of Commerce, Federal Board of Revenue (FBR), Competition Commission of Pakistan (CCP), Ministry of Science and Technology (MoST), State Bank of Pakistan (SBP), Pakistan Automotive Manufacturers Association (PAMA), and Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM).
The committee will be responsible for the following:
The government has set a timeline whereby the export targets shall be ensured. These export targets are indicative and shall be reviewed and enhanced periodically as per the following timeline:
Financial Year | Obligatory export as % of import value |
2021-22 | 0% |
2022-23 | 2% |
2023-24 | 4% |
2024-25 | 7% |
2025-26 | 10% |
The government will also ensure the formulation of the Auto Industry Development and Export Committee (AIDEC) which will deal with technical matters of the auto sector under the chairmanship of CEO EDB whereas the board itself will act as a secretariat of the committee.
The automotive industry is moving ahead at a fast pace in terms of technological advancement. With that under consideration, the government has decided to incorporate a clause regarding updates of powertrain technology, which includes:
Amendment through Money Bill requested for:
Description | UN Regulations (UNRs) | Vehicle Category | |
Active Safety | Brakes | R 13 & R 13H | Passenger Cars and Vans + Commercial Vehicles & Buses |
Steering | R 79 | Passenger Cars and Vans + Commercial Vehicles & Buses | |
Tires | R 30 | Passenger Cars and Vans | |
Lighting | R 48 | Passenger Cars and Vans + Commercial Vehicles & Buses | |
Passive Safety | Safety Belts Anchorages& Belts | R 14 & R16 | Passenger Cars and Vans + Commercial Vehicles & Buses |
Seats / Head Restraints | R 17 & R 25 | Passenger Cars and Vans | |
Collision | R 94, R 95 & R 135 | Passenger Cars and Vans | |
Airbags | R 121, R114 | Passenger Cars and Vans | |
General Safety | Safety Glazing | R 43 | Passenger Cars and Vans |
Mirrors & Cameras | R 46 | Passenger Cars and Vans + Commercial Vehicles & Buses | |
Anti-theft | R 18 | Passenger Cars and Vans + Commercial Vehicles & Buses |
Following the upsurge in the demand for crossover SUVs, the government has decided to lay particular emphasis on the promotion of economy cars with smaller engines. For affordable cars, the government has launched the ‘Meri Garri Scheme’ as per which, vans & Light Commercial Vehicles (LCVs) up to 1000cc, will get the following benefits:
These benefits are applicable to new models of all existing carmakers and new entrants. These incentives are valid for a maximum stretch of three years for all automakers, however, for those who receive the production certificate at a later date, the cut-off date for the incentives will still be June 30, 2026.
The AIDEP 2021-26 has several clauses for further bolstering the Pakistani automotive industry’s development. There’s a heavy emphasis on localization of vehicles, parts, protection of consumers, and incorporation of technology and safety. It is yet to be seen, however, as to how well the policy is enacted and implemented in the coming days.