KARACHI: The Ministry of Industry is working on a new five-year Automobile Development Policy 2021-26 (ADP) that will encourage existing and new entrants to produce low-cost vehicles and major incentives would be given to those companies who will exports vehicles and their parts from Pakistan.

“The government is considering cuts in taxes on the import of Complete Build Unit (CBU) and other spare parts in new auto policy in the finance bill 2021-22,” the industry source claimed. The measure would bring the vehicles’ prices down in Pakistan, it added.

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The current ADP 2016-21 will end next month. Several car companies, such as KIA, Hyundai, and Changan, have entered Pakistan’s market, while a number of other giants like General Motors and others are planning to set up manufacturing plants in Pakistan.

There are now two direct competitors to Suzuki Alto, the most selling car in Pakistan: United Bravo and DFSK’s Prince Pearl. Moreover, United Motors has also introduced Chery QQ with the name Alpha in a similar price range.

According to sources, the government is directly charging 40 to 45 per cent duties and taxes on every car from buyers. The government also charges duties on imported CKDs (completely knockdown units), the auto parts used in assembling cars.

The Customs duty on import of localised parts is 45 per cent. The duty on non-localised parts is 30 per cent. There is an additional 7 per cent duty on the import of parts.

Moreover, the Federal Excise Duty (FED) on cars up to 1000cc is 2.5 per cent, 5 per cent for cars between 1000cc and 2000cc, while it is 7.5pc on vehicles above 2000cc. Along with this, there is a 17% sales tax.

Engineering Development Board (EDB) General Manager Asim Ayaz told The Correspondent that the government has not yet finalised how much duties and taxes would be slashed in the new auto policy or the federal budget 2021-22. However, it is considering a cut in the customs and other duties on the import of vehicles and the spare parts. 

To bring down the price of a hatchback car from the present Rs1.5 million a unit to an affordable range of Rs1 million is a difficult task to achieve. The government has to reduce duties and taxes drastically to bring the prices down.

The industry sources said that the prices of passenger cars in Pakistan are on the higher side. The government may consider a reduction in Customs duty, Additional Customs Duty (ACD), and Federal Excise Duty (FED) for the entire auto sector in the upcoming policy.

Market analysts said that when demand exceeds 500,000 units, the industry becomes feasible. The indigenous industry has a capacity to produce 418,500 cars and the market demand is around 250,000 to 300,000 units a year.

The industry is recovering and production may reach 200,000 to 225,000 cars during the current fiscal year.

The author is a senior business reporter with bylines in leading newspapers and magazines across Pakistan.

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