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ISLAMABAD: The Federal Cabinet has reportedly rejected incentives for existing auto companies on manufacturing of new products, i.e., cars, vans, LCVs, 2-3 wheelers and tractors, well informed sources told Business Recorder.

The Ministry of Industries, sources said, had proposed incentives for both existing and new companies but the Cabinet kept it limited only to new companies.

The new product policy for 2-3 wheelers include incentives for motorcycles, motorcycle rickshaws and auto rickshaws having higher engine power than existing model. The said policy is aimed at introduction of new shapes and models of motorcycles and three wheelers in the market, particularly for export. The Custom Duty will be lower on new models of 2-3 wheelers.

The incentives under new product policy for 2-3 wheelers are further elaborated as follows: (i) for 4-stroke auto rickshaw of PCT heading 8703.2115 CD on localized parts @30% for new make or new model exceeding 200cc;(ii) for motorcycles rickshaw of PCT heading 8711.3020 CD on localized parts @30% for new make or new model exceeding 200cc;(iii) for vehicles of PCT heading 87.11(except motorcycles rickshaw of PCT heading 8711.3020) CD on localized parts @30% for new make or new model exceeding 125cc;(iv) custom duty on non-localized parts for above mentioned 2-3 wheelers will remain 15 %; and (iv) the cut-off date for approval of application as per criteria defined in SRO 656(I)2006 is June 30, 2023.The incentives will be allowed for a period of five years, after certification by EDB, from the date of issuance of manufacturing certificate or up-to 30th June, 2026, whichever is earlier.

Proposed auto policy: Tarin directs broad-based consultations with key stakeholders

The above dates have been extended to 30th June 2023 and 30th June 2026 respectively. The local industry of Pakistan is manufacturing tractors ranging from 35hp to 85hp at present. To introduce smaller tractors below 35hp, and tractors beyond 85hp category, the incentives have been envisaged for new product categories.

The incentives for introduction of new models have been summarized as follows: (i) the CD on localized CKD has been reduced from 35 % to 15 %. The concession is available to Agricultural Tractors of PCT heading 87.01 for new make or new model beyond 85 hp or below 35 hp;(ii) waiver of FED and ACD on locally manufactured tractors will be extended to new product policy;(iii) Sales Tax at import stage to be 5 % for CKD of tractor industry.

Policy incentives will end on June 30, 2026. The cut-off date for approval of incentives is June 30, 2023. The policy period is three years as certified by EDB from the date of issuance of manufacturing certificate or up to 30th June, 2026, whichever is earlier. The policy approved by the Federal Cabinet is applicable to new manufacturing plants.

The Finance Act 2021 has already provided two-year duty relief with cut-off date of one year i.e., 30th June 2022 and incentive period of two years i.e., 2024. However, the industry feedback suggested that the cut-off timeline and concession period needs to be enhanced in order to attract meaningful investment. Therefore, the above dates have been extended to June 30, 2023and June 30, 2026 respectively.

The new product policy for cars, vans, LCVs, 2-3 wheelers and tractors will be extended to all new manufacturing companies. The new companies will be required to install manufacturing facilities as per criteria defined in the SRO 656(I) 2006 as amended from time to time for establishment of minimum in-house facilities. The verification of in-house facilities will be carried out by EDB as mentioned in SRO 656(I) 2006 and the necessary approvals of list of imported components and their uploading on WEBOC will also be carried out by EDB as per SRO 656(I) 2006.

According to the AIDEP Policy 2021-26, it has been observed that the contract agreement of most of the local vehicle manufacturers with their Principals are for Pakistan market only, which may be one of the reasons for limited exports. As Pakistan has acceded to UNECE’s WP-29, which ensures harmonized vehicle regulations.

Local automotive sector has a chance to enhance exports by ensuring compliance to the regulations of importing market. In addition, all OEM contracts which forbid or restrain exports from Pakistan, to any other country, need to be renegotiated/ amended to allow exports to target countries, and make Pakistan an export base, both for auto-parts and vehicles. Obligatory export of parts/ vehicles by manufacturers will be introduced under AIDEP. The OEMs shall be asked to comply with following, for export promotion, however meeting of targets earlier than schedule will be incentivized.

The government has also made it mandatory for the car assemblers to export their cars for which 2 per cent export target has been set for 2022-23, 4 per cent for 2023-24, 7 per cent for 2024-25 and 10 per cent for 2025-26.

The export targets are indicative, which shall be reviewed and enhanced periodically. Following incentives will be proposed for exports once fiscal space is available with the Government;(i) for each vehicle exported, duty free import of appropriate number of CKD kits in next consignment through WeBOC may be considered;(ii) import of all locally manufactured raw materials/components may be allowed under SRO 655(I)/2006 & SRO 656(I).2006 at 0% CD for export purposes;(iii) allowing payment of DLTL at enhanced rate on export of motorcycles, rickshaws, tractors, cars, and auto parts;(iv) specialized Temporary Economic Refinance Facility (TERF) may be designed / announced for capacity enhancement and modernization of auto manufacturers / exporting companies and ;(v) import of vintage cars, refurbishment & exports may be allowed duty free. The existing policy by Ministry of Commerce may be reviewed for Ease of Doing Business in consultation with Vintage Car Association. According to the policy, OEMs/vehicle manufacturers will be facilitated for local manufacturing of left-hand vehicles for export purpose only.

Copyright Business Recorder, 2021

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