The Federal Board of Revenue (FBR) is reviewing duties and taxes structure on the automobile sector in budget (2015-16) on the recommendations of the Engineering Development Board (EDB) and other stakeholders/departments. Sources said on Tuesday that the FBR has received budget proposals of the EBD for consideration in the coming budget. The EDB has made specific budget proposals to the tax authorities relating to the automobile sector.
EDB has proposed that export of vehicles is facilitated under SRO 656(I)/2006, (Sr. No 13 of the Table) with certain conditions. Auto-parts manufacturers (vendors), operating in the concessionary regime under SRO 655(I)/2006 are also exporting parts manufactured locally to different countries. However, SRO 655(I)/2006 do not specifically provide for export of automotive parts manufactured by the vendors operating under the said SRO, as highlighted by Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM). It is proposed that, on the same analogy as provided under SRO 656(I)/2006, a similar entry may be created / incorporated in the Table under SRO 655(I)/2006 to encourage /facilitate export of locally made automotive parts, subject to similar conditions / limitations, as specified under SRO 656(I)/2006.
Zero percent duty has been proposed on the import of raw materials, sub-components, components & sub-assemblies for the manufacture of parts for which IOR has duly been approved by EDB. Debiting of quota of inputs would be allowed to the extent of number of their exported units subject to the following conditions, no duty drawback was claimed at the time of export. the imported inputs relate to the same unit as was exported; and the importer makes a declaration in the bill of entry or goods declaration at the time of import that he intends to avail this facility in lieu of exported units and produces with evidence of export ie a copy of the bill of export or goods declaration bearing examination report of customs; bill of lading and foreign exchange repatriation certificate.
The EDB has also proposed amendment in SRO 656(I)/2006-revison of minimum in-house facilities. During Budget 2013-14, minimum in-house facilities, specified at Annexure-A to SRO 656(I)/2006 required for assembly/manufacture of automotive vehicles were amended vide SRO 496(I)/2013 to make these vehicle specific which earlier were generalised and common to all type of vehicles. While amending SRO, only in case of HCVs, "ED Paint Facility for Cabins" has been made mandatory. This has disturbed the HCVs manufacturers operating on low volumes and have requested for revising this condition. Other leading players have opposed such revision.
It was decided in the AIDC meeting to revise the condition as under and make the ED Paint Facility mandatory for all assemblers after 5-years: 'Preferably E.D / Conventional Painting facility for cabins'. Under SRO 656(I)/2006 rate of duty on import of tyres for the vehicles falling under Heading 87.01 (other than Agricultural Tractors) is 20% whereas under first schedule these Tyres are importable @ 5% under PCT Heading 4011.2090. To remove the anomalous situation it is proposed to amend SRO 656(I)/2006 to correct the duty on vehicles (Other than Agricultural Tractors) to 5% from existing 20%.
It proposed that dumpers falling under PCT Heading 8704.1010 designed for off highway use irrespective of horsepower or 280 hp and above, are covered by SRO 656, whereas, Special purpose motor vehicles of 87.05, other than those principally designed for the transport of persons or goods (for example, break-down lorries, crane lorries, fire-fighting vehicles, concrete-mixer lorries, road sweeper lorries, spraying lorries, mobile work shops, mobile radiological units are not covered under the SRO. To facilitate the local manufacturing of such vehicles it is proposed to incorporate these vehicles in the table of SRO 656(I)/2006. It may be added previously these vehicles were part of CKD operations under SRO.502(I)/94 dated 9th June 1994.
Considering the high prices and shortage of fuel (Oil & Gas), FBR, in Budget 2013-14, issued SRO 499(I)/2013 providing exemption on import of Hybrid Electric Vehicles (HEVs) falling under PCT Code 87.03 only. To encourage local assembly of all types of HEVs (Vans/Buses & LCVs/HCVs), import duties on HEVs CBUs need to be rationalised as per recommendations of ADP. To encourage local assembly of HEVs, duties & Taxes on the import of Hybrid Specific parts be made 5% under SRO 656(I)/2006 as per recommendations of ADP.
Under SRO 577(I)/2005, duties and taxes rates were fixed in US dollars way back in year 2005 and, except once in the year 2008, were not revised for more than five years , whereas, during this period, US $to JPY parity has changed and the prices of vehicles have increased substantially. The amount of duty fixed unchanged for last more than five years is an obvious lapse causing loss to the exchequer and became an implicit subsidy (very heavy indeed) to the used cars which discriminates the local industry by taking market share unduly . Above all, when updated, the government will be able to recover additional billions in the revenues. SRO 577 (I)/2005 may be updated to bring the fixed amount of duty and taxes at par with the reality of the time, it proposed. During Budget 2013-14, on the recommendations of EDB New PCT Headings for following vehicles were created under Customs Tariff to encourage local assembly / manufacturing of these vehicles. However, entries related to local components of these vehicles were not incorporated under Customs Tariff as well as SRO 693(I)/2006, which have created anomalous situation for the assemblers as well as parts manufacturers. Due to non-availability of these components under SRO 693(I)/2006 (components carrying additional duty), OEMs of the said vehicles can import these components at concessionary rate of duty and would thus result not only in revenue loss but also be detrimental to parts makers manufacturing these components locally for similar vehicles.
EDB recommends incorporating localised components in respect of afore-said vehicles under the Pakistan Customs Tariff as well as in Appendix-I of SRO 693(I)/2006. While transposing over various HS Code versions 2007 & 2012 certain HS Codes like 8701.9040 & 8701.9060, were removed from Pakistan Customs Tariff but the same are available under SRO 693(I))/2006. These HS Codes and entries related thereto have also been removed from SRO 693(I)/2006 to make it compatible with Pakistan Customs Tariff.
It said that the AIDP 2007-2012 emphasised localisation of critical high value added parts with the objective to encourage transfer of technology and further indigenization; allow import of parts, components at reduced duty (IORs) and passing on the benefit of reduced duty to consumers. Certain components / assemblies used for assembly of Cars 87.03 & Motorcycles 87.11 were also supposed to be shifted under SRO 693(I)/2006, and the same were also recommended by EDB in previous years budgetary proposals.
It is proposed to add new, in SRO 693(I)/2006 as well as in Customs Tariff for cars and motorcycles. It is pertinent to highlight that the net impact of proposed increase in the rate of customs duty of these parts/products would be offset by the proposed reduction in the rate of duty under the proposed ADP. With regard to localisation of Engine & Transmission for cars, it is pertinent to mention that the three major OEMs are availing concessions under SRO 655(I)/2006 for last five years for the local manufacturing/assembly of engine & transmission.
It said that road Wheel falling under PCT Heading 8708.7020 in all sizes (6x16, 7x20, 7.5x20, 8.0x20 and 8.25x22.25) for the vehicles including Trucks and Prime Movers are being manufacturing locally whereas, under SRO 693(I)/2006, Road Wheels for Trucks of Heading 8704.2390 other than "6x2 vehicles" are excluded. Local industry has the capability and the capacity to manufacture the wheels for 6x4 vehicles also. It is recommended in order to prevent the local industry from roll back and to ensure its future growth, it is recommended to amend the existing description against PCT Head 8708.7020, under First Schedule of Customs Act and SRO 693(I)/2006.
It said that tariff scheme for pneumatic tyres of rubber under PCT heading 40.11 is such that all locally manufactured pneumatic tyres are importable @ 20 or 25% CD, except for those falling under HS code 4011.2090, which are @ 5% CD. A lower rate of CD for aforesaid heavy vehicles tyres including trucks, buses, tractors, etc was levied to curb their smuggling. However, the objective of curbing smuggling has since not been achieved and the local industry is suffering due to increase in commercial import of these tyres at grossly under invoiced values.
It is proposed that CD on pneumatic tyres of rubber falling under HS code 4011.2090 may also be raised to 20%, in line with protective rates of duty for tyres falling under tariff headings 4011.1000 and 4011.2010. Under the First Schedule, Unit of Measurement (UOM) of certain automotive parts is shown as "KGS" instead of "Nos.". Incorrect U O measurement is affecting data management and audit, and thereby negatively affecting revenue collection. Raw materials for parts cost more than the parts imported in finished form. In the case of motorcycle parts, huge difference in valuation of parts imported by OEMs and Commercial importer (same source and same quality) has created tendency toward commercial imports (low value/under invoicing) thus not only retarded localisation but also depriving the government of huge revenue. Currently commercial importers are being assessed at $1.2 per kg for engine components. At this assessment, an engine which weighs at around 20kg is valued at $24, which is far below the actual value. Any engine imported from China is not under $70 no matter how low the quality is. Keeping this in mind, at minimum both OEMs and commercial importers should be assessed at $3.5 per kg or more.
It is accordingly, proposed that UOM in respect of tariff headings (Annex-III) may be substituted with "Nos.", instead of "KGS". The valuation of auto parts imported by OEMs and Commercial importer should be rationalised and made equivalent. This will create a level playing field, encourage localisation and will increase FBR's revenues.
It also proposed that data of registration of vehicles needs to be centralised. Present system provides a loop hole for registration of one vehicle in different provinces. Centralisation of vehicles registration data will minimise the loop holes in registration of vehicles and can save huge amount of taxes evaded due registration of vehicle at various places and shall also facilitate security agencies to counter terrorism and avoiding duplicate registration of vehicles.
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