Indigenised vehicle parts import: three-year relief for new entrants

The Federal Government has decided to waive the levy of additional customs duty on import of Indigenised parts of vehicles manufactured by new entrants for three years as per Auto Industry Development Plan (AIDP), official sources told Business Recorder.
However, the incentives will be notified prospectively from the date of notification as Law Division has raised objection on retrospective notifications, sources added. In a note titled 'issuance of notification for import of 100 CKD under AIDP for new entrants', written by the Federal Board of Revenue (FBR) to Finance Minister Dr Abdul Hafeez Shaikh, a copy of which is available with Business Recorder, the ECC of the Cabinet in its meeting on November 13, 2007 had approved the AIDP and approved incentives for new entrants.
According to the incentive the new entrant will be allowed to import 100 percent CKD kits at the leviable customs duty for the period of three years from the start of assembly/manufacturing. It is relevant to point out that FBR has supported this aspect of the AIDP. According to the FBR, the duty reduction and indigenisation plan of five years, as contained in Tariff Based System (TBS) of AIDP for existing manufacturers of cars/LCVs, was implemented for initial two years. It was not implemented in 2009-10 on recommendation of Ministry of Industries.
The FBR took up the matter of implementation, but it was deferred as entire tariff was under review. However, the decision of the ECC for new entrants has not been implemented so far. The issue did not arise earlier as nobody made any investment to claim the incentive of new entrant. Recently, the Ministry of Industries/EDB has recommended AL-Haj FAW for the incentives of AIIP.
Implementation of the ECC decision regarding incentives for new entrants of auto industry involves following two steps: (i) Ministry of Industries has to notify the eligibility criteria and administrative procedure of determining eligibility of new entrants under AIDP. The Ministry has notified the procedure vide notification No 2-04/2006-Tech-I dated 07-10-2011.
The notification has been given effect from date of approval of AIDP ie 13.11.2007; and (ii) FBR has to notify the customs duty incentive by amending relevant notification. According to the ECC decision, the incentive will allow exemption from additional customs duty levied on the Indigenised parts of the kit. Additional customs duty has been levied vide SRO 693(1)/06 and exemption of additional duty for new entrants will involve suitable amendment in SRO 693(1)/2006. Since the Ministry of Industries has notified the procedure, FBR has to notify the incentive.
Auto industry analysts maintain that the loss of vendor industry (PAPPAM) by non-operational OEMS which exist from 2005-06 will be hurt by opening of second-hand/used cars. PAPPAM on the issuance of the notification from MoI for the new entrants issued a statement that 'briefcase' investors were not appreciated in the market. However, the Association welcomes genuine auto sector investors.