WILL THE
DREAM OF LOW-COST CARS BE TRUE IN NEW AUTO DEVELOPMENT POLICY 2021
There has been lot of
discussion on how to reduce the prices of cars in Pakistan but customers still
are waiting for the concrete steps to make the dream of low-cost cars true. Will
the new Auto Development Policy (ADP 2021-25) focus on facilitating the
manufacturing of low-cost cars?
LO-COST CAR PRICES PAKISTAN
As the current Auto
Development Policy (ADP 2016-21) is about to end in June this year, so the Auto
Industry Development Committee (AIDC)’s recent meeting has come out with some
suggestions and pointed out the core reasons behind high cost of cars in
Pakistan. The government is preparing a new auto policy that should focus on
facilitating the manufacturing of low-cost cars.
According to
various industry sources, approximately 45% of car price that a consumer pays
set off to the government in the form of duties and taxes.
The rate of government charged duties on
imported CKDs (completely knockdown units), which are the auto parts used in
assembling cars is as follows:
- The Customs duty on import of localised parts is 45%.
- The duty on non-localised parts is 30%
- There is an additional 7% duty on the import of parts
- The Federal Excise Duty is 2.5% for cars up to 1000cc
- 5% for cars between 1000cc and 2000cc
- 7.5% above 2000cc
- There is a 17% sales tax.
Another core
reason of increased price of cars is that the small (entry-level) cars have been
neglected in the past. It provided limited choices with high prices to the
customers. The new policy must focus on manufacturing of entry-level cars. A
document prepared after the Auto Industry Development Committee (AIDC)’s recent
meeting released these suggestions.
So the
government can influence cars price by reducing taxes and duties.
“By the time
a consumer gets a car, around 45% of the total goes to the government. It goes
bit higher for bigger cars.
We can say
that to get the car range of Rs1 million from 1.5 million will be a not easy task
to achieve. The government has to
significantly reduce duties and taxes to reduce the car prices,”.
The ADP
2016-21 policy will be ending this year in June. Now Engineering Development
Board (EDP) and Ministry of Industries and Production are on way to work on the
new Automotive Industry Development and Export Plan (AIDEP) for the next five
years.
“The cost of
vehicles in Pakistan is elevated now. The government may consider a reduction
in Customs duty. Also removal of Additional Custom Duty (ACD) and Federal
Excise Duty (FED) for the entire auto sector in upcoming AIDEP,” the committee
said in the meeting.
“On the other
side while reducing the input costs, in return, the government expects
reduction in prices by the OEMs (Original Equipment Manufacturers) & car
making companies. An increase in localisation and concerted effort to increase
exports is expected.
The local
vehicle manufacturing companies should reinforce their bond with local part
manufacturers to enhance localisation, which will lead to cost reduction, price
stability, and employment generation then.
It is good
sign that the new entrants such as Hyundai, Kia, Changan, United Motors have
received Greenfield status. Green status means that the companies will pay
lower duties on import of CKDs. As per status, duty on localised parts is reduced
to 25%, and 10% on non-localised parts for new companies with Greenfield
status.
One of the
new entrants expressed that it appears that there’s a 20% difference between
old and new auto players. Still there are certain SROs that support old
players, reducing the difference to around 15%.
According to
the committee the new entrants under ADP 2016-21 will be facilitated through
continuity of the policy to ensure the confidence of the investors. In return,
they should however prepare to merge with the mainstream at the end of their
five-year period.