Automotive Articles

Suggestions and Solutions – New Auto Policy 2016-21

“We are a confused nation” the reflection of this phrase can be seen in every segment of our everyday life. New auto policy 2016-21 is one of an ideal example.

If we refer the document issued by the Government of Pakistan ADP 2016 – 21, we will find in article 4.3 under the heading of “Eligibility Criteria” in the section of new investment policy, it is mentioned that “The Auto Industry Development Committee (AIDC) and Engineering Development Board shall review results of the new investor policy once every two years and shall recommend modifications, if any. On this basis all concerned quarters are always refuse to make any change / amendments / improvement in the policy and also take stand that Government want to keep consistency in the policy to create confidence and trust among the new potential investor. However, as usual Government by herself break her own rules and did not reduce custom duty on the import of new cars as promised / mentioned in the new auto policy 2016 – 21 in article 3.1, under the heading “Tariff System for Cars, SUV’s & LCV’s (HS Codes 8703 & 8704) in section sub heading “Tariff Rationalization”, main heading is “Tariff Structure for Development of Automotive Sector”.

It is mentioned many times by the Government officials that existing automobile assemblers are over protected and Government want to create a healthy competition among the players. In order to provide an enabling environment, conducive to development and growth of the automotive industry a stable and consistent tariff regime is essential, on the other hand by not reducing the promised custom duty a signal of inconsistency has already given to the industry. On the other hand over protection to the existing players shall be continued.

The auto policy 2016 – 21 was announced in March 2016, so 2 years period shall be expired in march-2018. This is the high time that Ministry of Industry & Production and Board of Investment start working on the amendments and improvement in this policy and try to take in confidence to all stake holders.

THE PREMIUM OWN MONEY BLACK MARKET MENACE
Father of the nation, Quaid-e-Azam Mohammad Ali Jinnah in his first address to the constituent assembly on 11th August 1947 mentioned that “Black – Marketing in another cause, now you have to tackle this monster which today is a colossal crime against society in our distressed conditions”. The present scenario is the all three big Japanese brands having assembly plants in Pakistan are selling their vehicles on premium which is actually an act of black marketing the average premium is around (Rupees: Two Hundred Thousand) otherwise waiting period after booking is six months. Average annual sales of cars in Pakistan is 200,000 units. It means auto industry is creating a black market of 40 billion rupees per annum. This income is undocumented and tax free.

EXISTING PLAYERS
First of all please make some space for the existing players in new policy if they want to bring fresh investment and new models. Their terms and conditions could be different (Less Lucrative) in comparison to the all new investor and players.

BROWNFIELD WILL NOT BRING ANY FRUITFUL RESULT
Article 4.1.2, Category – B: Brownfield investment may be abolish from the policy as it brings no positive result as yet and even no hope in future. On the contrary this category created a confusion. If we see in broader spectrum this category is against the normal business practice, because it tries to support an industry which was closed due to inefficiency which could be management inefficiency, financial handicaps or product failure in the market. As a whole Brownfield industry did not contribute in national exchequer. On the other hand the industries which are contributing to national economy (existing players) are not allowed to get benefit from the new policy, I think this is a biased attitude. It is relevant to mention here that Pak Suzuki has submitted his new investment plan in December 2016 and seeking to get some benefit thru new auto policy which was rejected by the Government because no concession was available to existing player under new auto policy.

MKD / SKD OPERATIONS SHOULD BE ALLOWED
MKD / SKD (Medium Knock Down / Semi Knock Down) assembly category may be introduced for the new investor. Facilities and concessions to this category could be lesser / different than the facilities, concessions available to the CKD investors.We should realize our capabilities and market size. European Car makers do not see us as a viable option for CKD operations. If we want to create stir in Pakistan automotive industry MKD/SKD operations should be allowed.

CHECK VERIFY THE CREDIT WORTHINESS OF NEW ENTRANTS
It is usual practice in Pakistan to generate funds through advance booking of the vehicles. In 1994 Tawakal Motors scam has given a big blow to Pakistan automobile industry about 16000 people lost trier hard earned saving the accused were involved in KIA PRIDE car scam in which 16000 people were deprived of their cash through advance booking of vehicles all over the country. After collecting more than Rs. 800 million the accused failed to provide cars to their customers and fled to the U.S. So credibility and financial soundness of new entrant is of utmost importance. Submission of CIB, credit investigation report should make compulsory to all new entrantswhich isbeing issued by the State Bank of Pakistan. It is specially necessary for the consumer protection and generally for the smooth growth of automotive industry without financial juggleries and malpractices by the new entrants.

FRAME WORK ———– ??

It is mentioned in the preface of the automotive policy that “The Policy Provides Broader Guidelines”. It means that a frame work document should be prepared / issued by the ministry for the new entrants. Many issues need clarifications and explanations for the submission of applications by the new investors for the establishment of plant / factory under this policy. The following vital issues could be the part of the frame document.

a. Calculation of Concessional Period for Green Field Project

A Green Field Investor is entitled to import the non-localized and localized parts for the period of five years on concessional rate of custom duty. It may be mentioned when and how these five years shall be calculated means at what stage eligible time will start and when it will be finish i.e will it start from the date of approval or from the date of first launch of product.

b.Duty Free Import of Plant & Machinery

A prospective investor is eligible for duty free import of plant and machinery for setting up the assembly and/or manufacturing facilities on one-time basis.

A complete and comprehensive procedure may be explained in suggested frame work document that how and when this exemption could be availed and from which authority i.e Engineering Development Board, Board of Investment or direct from Ministry of Industry’s this exemption certificate will be issued.

It was verbally explained in different meetings by the Ministry of Industry & Production that the list of Plant & Machinery mentioned in SRO 656 shall be treated as the importable items. These relevant contents of the SRO 656 shall be made integral part of this suggested frame work document.

c. Agreement Between Investor and Government of Pakistan

It is mentioned in Auto Policy 2016-21, that an agreement will be signed between new entrant and Government of Pakistan. What is the format of this agreement.The contents of this agreement is not known. In our opinion this is a prime document which has to sign and agree between investor and Government of Pakistan. This document may not keep secret / confidential. It should be open document and its contents in shape of draft should be the part of framework document. Logically too, a prospective investor should know before the investment that what would be his rights and responsibility and what would be Government of Pakistan rights and responsibility.

d.50% Consession Duty of 100 Unit CBU

It is mentioned in the policy that “Import of 100 vehicles of the same variant in CBU form at 50% of the prevailing duty for test marketing after ground breaking of the project.” The concessionary period is five years in case of Greenfield project. If a company has plan to launch 5 different models on the basis of one new variant each year could it get approval for 100 units of each variant every year. Its methodology should be clearly mentioned in this framework document.

By Anwar Iqbal

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