The previous auto policy, 2021–26, has expired, and a few players are waiting for a new one, while the smarter ones are adjusting to the default position. There is confusion about taxes and duties. Infighting among players continues, while space is being created for commercial importers to jump in.
The good news for EV enthusiasts is that sales tax and duty concessions have been extended for another year. Some players are relying solely on CBUs, and they may continue this spree. However, clarity is missing on what will happen after one year, as the IMF is adamant about normalizing taxation on these vehicles. Some may defer EV production decisions, while everyone will keep selling CBUs and expect no price change in the mid-crossover segment.
REEVs will continue to receive the same treatment as EVs, as they may be gaining market size. Already, some EVs, which are CBUs, and one REEV, which is CKD, are selling like hot cakes. Expect more players to enter the segment. However, some players are still lobbying for similar tax treatment for PHEVs and REEVs.
The default position is 1 percent GST on EVs and REEVs, while it is 25 percent for PHEVs and HEVs in certain segments. The EV and REEV policy has received a one-year extension, while the lower GST policy for HEVs and PHEVs is over. That takes GST to 25 percent, the same as for comparable ICE vehicles. Some players expect an SRO to bring it down to 18 percent. Let’s see what happens.
The other issue impacting auto assemblers across the board is the start of reverse cascading in the belly of the market. The duty on commercial imports has been reduced to 25 percent on parts, while it ranges from 30 to 50 percent on CBUs. On the flip side, the duty on CKD is 32 percent and 46 percent based on localization, and the weighted average for newer players is 38 to 40 percent.
Local assemblers are expecting another SRO with a decline in duties on CKD.
Thus, a few players are anticipating two changes: lower GST on HEVs and PHEVs, and lower tariffs on CKD. That is why some have halted production in certain segments, mainly HEVs and PHEVs. One Japanese player changed prices on HEVs and started taking orders, while others are waiting.
That is the ground situation. The government is still taking opinions from economists on the policy. One may wonder whether that should have been done earlier. Anyhow, one Lahore-based economist is extremely disgruntled over the subpar analysis done by various ministries over the last one year.
The legwork and deliberation on the auto policy should have been done well in advance, and it should have been presented with, or before, the budget. However, the new fiscal year has started, yet the policy is still under deliberation, and players are still actively lobbying.
Meanwhile, the rumor mill is in full swing. New price forecasts are being circulated based on expected changes in taxes. It seems July will pass in this confusion, and industry production numbers, with an average of 25,000 units per month, are likely to remain low. Some plants are completely closed, while others are partially working. The sooner clarity comes, the better it will be.
The future direction seems to be lower protection for the domestic industry. CBU tariffs are lower. In the coming years, ACDs and RDs are to be abolished, and it would become difficult for some players to survive. Used car imports may increase, and dumping may start taking place.
Things are not looking rosy for numerous new players in the auto industry. As someone aptly put it, autos are the new cement for local seths: everyone wants to join the party, while the juice is limited. Let’s see how long the party lasts.