KARACHI: The government is likely to slash Additional Customs Duty (ACD) by 5 percent and Federal Excise Duty (FED) to 2.5% on auto-related imports in the upcoming auto policy 2021-26. According to the sources, the cumulative tax on locally produced vehicles was as high as 40% of their retail selling price - with 30% customs duty, 7% to 15% ACD on parts and subcomponents together with 17% sales tax and up to 7.5% FED at the retail stage.

Now the government is cognizant of this fact that such high taxes are choking the demand and not conducive for the growth of the industry. Therefore, the government is planning to announce the reduction in ACD from 7% to 2% and FED by 2.5% (across the board) on auto-related imports in the upcoming auto policy 2021-26.

In addition, GST on small vehicles of up to 1000 cc has been reduced to 12.5% from 17% which will give major relief to buyers of entry-level vehicles.

The ministry of industries is also talking with all players to ensure that this duty and tax reduction should translate into equitable price reduction for the consumers, they said.

Moreover, sources termed the government's decision to encourage all new technologies including Hybrids (HEV) and Plug-in Hybrids (PHEV) vehicle production in Pakistan is the most promising aspect of the new policy, which is being welcomed by the entire industry.

Furthermore, the upcoming policy may include incentives for PHEV and HEV local production by allowing its specific parts at 3% and 4% customs duty respectively.

In addition, the GST for both PHEV and HEV may also be at 8.5%, the same as being given to HEV CBUs, they said and added that the duty structure for non-localized and localized parts for HEV is likely to remain the same at 30% and 46% respectively for existing players.

Earlier the government has allowed incentives for Electric Vehicles (EV) whose specific parts are allowed at 1% customs duty, non-localized parts at 10%, and localized parts at 25% and GST at 1% only, they said.

Meanwhile, the auto industry is of the view that upcoming auto policy will encourage the OEMs to bring in new technologies HEV and PHEV in the domestic market.

Ali Asghar Jamali, chairman of Pakistan Automotive Manufacturers Association (PAMA), said that the decision to rationalize taxes in the new policy will make locally produced vehicles more affordable thereby improving the demand and would also help in maximizing the industry's installed capacity utilization.

"Industry is extremely appreciative of the government's decision to reduce duties and taxes on locally-produced vehicles which shall help spur growth in the industry," he said.

Copyright Business Recorder, 2021

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