Bright Skies and a shining Sun

(Business Page-Monday)

The government has showered auto assemblers with a number of incentives like a cut in
the Federal Excise Duty (FED) by 2.5 per cent, additional customs duty (ACD) from 7pc to
2pc and general sales tax (GST) to 12.5pc from 17pc on cars up to 1,000cc. Consumers
have recently witnessed price cuts of Rs11,000-400,000 on different engine power
vehicles.

Industry people believe that the cut in duties and taxes in Budget 2021-22 is an integral part of
the new Auto Development Policy 2021-2026 and some more relief measures are on the cards
when the new auto policy will be unveiled.

Chairman Pakistan Automotive Manufacturers Association (Pama), Ali Asghar Jamali said the
industry is extremely grateful to the government for duty and tax rationalisation that will certainly
help grow industry volumes and in the process create more jobs — as the auto industry has the
highest job multiplier effect.

“We are optimistic that through increased volumes the industry will generate more revenue for
the government, create more jobs and increase economic activity in the country,” he said.

He said car and sports utility vehicle (SUV) sales would increase in 2021-22 after cuts in duties
and taxes as almost all players have reflected the decrease in their prices. “Together with lower
interest rates, growing remittances and a stable exchange rate and economy, demand should
remain healthy for vehicles,” Mr Jamali said.

‘As volumes grow from 250,000 to 500,000 units, at least one million new jobs will be created
by the auto industry alone which augurs well for the present government’

On new job creation on possible rising sales of cars and SUVs in 2021-22, he said every
incremental vehicle made and sold locally creates at least five to six jobs i.e. one new job by
assemblers, two to three jobs by the part makers and rest in the value chain with the dealers for
sales/after-sales support and with the logistics/transport companies.

The Indus Motor Company CEO said, “as volumes grow from 250,000 to 500,000 units, at least
one million new jobs will be created by the auto industry alone which augurs well for the present
government.”

Amid challenges, the government has balanced out revenue and expenditures whilst giving
adequate stimulus to the industry to grow, he added.

The IMC top executive said the policy interventions are well deliberated as the main focus for
the government is to grow the industry volumes by making cars more affordable, particularly for
entry-level/eco-car buyers and at the same time encourage environment-friendly technologies
like hybrids.

Mr Jamali urged the government to ensure continuity in policies so the industry can invest
without any fear of policy change.
When asked whether the budgetary measures are satisfactory, he said the auto policy regime is
very complex to navigate so there is always a possibility of inadvertent errors and omissions.
Two such cases have been identified by the industry — one being the 2.5pc FED reduction on
double cabin pickups/light commercial vehicles (LCV) which was missed out and the second
was the inclusion of part makers for ACD reduction from 7pc to 2pc.

Both omissions have been communicated to the government and the industry has been given
assurance that both would be rectified soon, he said adding that the dialogue/process of
policymaking was absolutely transparent aimed at growing the industry.

The overall policy direction is to grow the industry volumes to 500,000 units in the next few
years as well as making hybrid vehicles production viable, the IMC CEO said. This is a practical
approach by the government to gradually electrify the vehicles and allow local customers to be
accustomed to hybrids, he added.

Another major focus of the policy, he said, is to gradually encourage auto parts exports which
would help part makers in a big way.

Chairman Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam),

He said a few more adjustments, such as a waiver for ACD on raw materials imported under
statutory regulatory order (SRO) 655, measures for export promotion of parts and vehicles,
targets for capacities and production during the policy period, implementation targets for safety
standards, easy and attractive financing through State Bank of Pakistan for buying cars under
1,000cc, etc, will be announced.

“By and large pro-growth budgetary measures are taken. We appreciate the initiative and are
confident that the Federal Board of Revenue will end up with a higher collection of taxes from
the auto sector despite cuts in taxes,” he said.

On market reports that ACD has not been cut on raw materials being imported by auto parts
makers, Mr Aizaz responded Paapam has requested ACD on sub-components imported under
SRO 655 to be decreased to zero. It holds little logic to charge 2pc, 4pc and 7pc ACD on raw
material whereas ACD on imported parts of cars (completely knocked down) and light
commercial under 1,000 cc has been reduced to zero and on over 1,000cc segment reduced to
2pc.

“We have taken it up with the government and are very hopeful that ACD on raw materials for all
segments including motorcycle, tractors and heavy commercial vehicles will be reduced to zero
in the upcoming auto policy,” he said.

On job creation given the possible rise in cars and SUV sales, he said about eight jobs are
created on sale of every locally made car. “We expect an uptick of around 50,000-80,000 cars in
2021-2022 so employment growth is expected in the range of 0.4 to 0.64 million. Tractor and
motorcycle segments are also growing, so further jobs will be generated in these segments as
well,” Paapam chief said.
When asked why the government has not taken any measures to provide any relief to the two-
wheeler buyers as bike prices have increased more rapidly than the car segment, he said
“presently we are living in a very volatile and uncertain era.” Motorcycle prices have increased
due to an unprecedented jump (over 100pc) in raw material prices like steel, copper, aluminium
and plastic resins within a year. This is an international phenomenon.

“In such circumstances, we request the government to cut down the additional customs duties
on motorcycle CKD and raw materials imported under SRO 655 for manufacturing parts.” ACD
has been reduced to zero on CKD of cars under 1,000 cc to facilitate the middle-class buyer of
small cars. “Motorcycle users should be given at least the same/matching incentive in ACD as
given on cars under 1,000cc,” he urged.

Published in Dawn, The Business and Finance Weekly, July 19th, 2021