APMA, PAMA, PAAPAM, APMSPIDA AND PASPIDA ASK GOVERNMENT TO CUT TAXES IN BUDGET 2016-17

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CHINESE BASED MOTORCYCLE ASSEMBLERS – APMA

Motorcycle assemblers have demanded the government to relieve the industry of some taxes in the upcoming federal budget of Fiscal Year (FY) 2016-17. According to the Muhammad Sabir Shaikh, Chairman, Association of Pakistan Motorcycle Assemblers that over 50 plants out of total 120 are shut and the remaining are not meeting their production maximum. Only 50 percent of total production capabilities are being utilized currently by production houses in the country.

The industry is capable of producing around 4 million units per anum but sales are stagnated at 2 million since last two calendar years. Some of the Industrialists who are members of APMA said that lesser production leads to increased manufacturing cost while government’s production quota scheme under SRO 656 (I)/2006 through EDB has resulted in limited use of capability and licensed by PSQCA is totally a waste of time.

Sabir Shaikh further stated that employment opportunities would increase if the government considers industrialists’ recommendations and cuts taxes. Federal budget for fiscal year 2016-17 is scheduled to be announced in June. Federal Minister Ishaq Dar had delayed the announcement which was to be made in May in light of the burning Panama leaks issue.

JAPANESE BASED MOTORCYCLE  & CAR ASSEMBLERS – PAMA

The body of Japanese bike assemblers and car producers Pakistan Automotive Manufacturers Association (PAMA) in its budget proposal for 2016-17 has urged the Govt to consider its recommendations regarding levy of 1% extra tax on auto sector, Regulatory Duty on steel products, WHT on exports, duty on dies, tools and machinery, and sales tax adjustment issue for Motorcycle dealers. PAMA stated that there is levy of Regulatory Duty on Steel Products under SRO 568(1)/2014 by two amendments vide SROs namely SRO-131(I)/2015 and SRO-246(I)/2015.

These SROs affected few HS codes with regard to basic raw material to Auto Industry increasing per vehicle cost impact for around 3,000 to 5,000 depending on extent of sheet metal and pipes used in a vehicle. ‘Certain categories of steel materials (Sheets) which are not manufactured locally have been inadvertently included in the said SRO, which form basic raw material, for component or sub-components of the automotive industry.

It is proposed to include imports made under SRO 655(I)/2006 as exempt from regulatory duty under SRO 568(I)/2014, as such exemption has also been given to other sectors such as imports covered under 678(I)/2004,’ proposed PAMA. The association justified their suggestion by stating that steel sheet is required as raw material for manufacturing automotive components, so including the list of steel materials under SRO-568 the exemptions already available to the auto-industry have been ignored, resulting in discouraging localization of such materials and reverting to imports, which hopefully was not the intention because the additional duty will surely increase the cost of goods manufactured. Similarly, PAMA stated that there is levy of 1% Additional Custom Duty on imports of goods specified in first schedule of Customs Act 1969 vide SRO-1178(I)/2015.

‘It is proposed to exempt imports made under SRO-655(I)/2006 and SRO-656(I)/2006 from additional custom duty under SRO-1178(I)/2015,’ proposed PAMA. The association stated that additional duty on input items like raw material, component, sub-components and CKD of the automotive industry that are not manufactured locally have impacted the highly cost sensitive sector. ‘Custom duty on machinery, parts, dies, moulds and tools should be reduced from the present rate of 5% to 0%,’ proposed PAMA.

The association justified this proposal by stating that the industry is in growth phase, so to encourage local manufacturing, investment needs to be made attractive and lower initial investment will encourage organized sector. PAMA also proposed that motorcycle dealer/retailer should be included into the exempted category as listed in SRO-647(I)/2007 as amended by SRO-564(I)/2012. ‘Motorcycle being a high unit cost item warrants special treatment otherwise the excessive refund will tie up the working capital of the dealers and make his business unviable,’ reasoned the association.

MOTORCYCLE  & CAR PARTS VENDORS – PAAPAM

Pakistan Association of Automotive Parts and Accessories Manufactures (PAAPAM)  urged the government to reduce sales tax on 800cc cars produced in Pakistan – from 17 to 5 percent, well informed sources in EDB informed to Automark. The Association which recently met with the top brass of Federal Board of Revenue (FBR) submitted four major proposals to include in the federal budget to be announced on June 3, 2016. PAAPAM has urged the government to exempt raw material imports from Regulatory Duty under SRO 655 by auto parts vendors, through addition of SRO 655 in the RD exempted SROs listed in SRO 568 and credit lines for auto parts manufacturers for setting up plants to produce high-tech parts in the country. The rationale provided for this is that tariffs for raw material imports by auto parts manufacturers (APMs) under SRO 655 are prescribed for a period of 5 years under Automotive Development Plan (ADP-2016-21). Imposition of RD on raw materials imports by APMs has put them at a disadvantage, as no RD has been applied on finished auto parts imported by auto assemblers/commercial importers. Imposition of RD will affect the sanctity & predictability of the ADP and render the local APMs uncompetitive. Secondly, the auto parts manufactures have also sought revision of import levies on imports of used cars below 1000cc, by arguing that on the average, APMs supply local parts worth Rs 250,000 to Rs 300,000 for locally produced cars below 1000cc. They suffer loss of sales/profit when used cars take market share from cars produced in the country. During the last 9 months (July 2015 March 2016), a total of 24,500 used cars below 1000cc were imported. Had these cars been produced locally, the APMs would have generated sales of approx Rs 7 billion and created 49,000 new jobs in the manufacturing sector. The Association has calculated that fixed import levies of used cars below 1000cc under SRO 577 are suppressed and need a review. Thirdly Association has also requested a reversal of 50 per cent & 25 per cent duty rebate on import of hybrid vehicles below 1800cc and above 1800cc respectively, reasoning that through SRO 499 (1) 2013, the government allowed a 50 percent & 25 percent duty rebate on new/used hybrid vehicles below & above 1800cc respectively to encourage fuel conservation and control balance of payment deficit. This tax rebate, amounting to around Rs 950,000 per vehicle led to annual import of around 6,500 hybrid vehicles, causing loss of business for auto parts vendors, who are supplying local parts to comparable vehicles domestically produced in the 1600-1800cc category Currently, the price of oil has dropped to historic lows, due to which pressure on Pakistan’s current account has eased and there is no apparent need to subsidise hybrid vehicles. Also, there is no protocol/procedure for disposal of lithium batteries used in hybrid vehicles and this can cause major environmental disaster in the country.

COMMERCIAL MOTORCYCLE  & CAR PARTS IMPORTERS – APMSPIDA

Motorcycle Spare Parts Importers have proposed the government to reduce customs duty of spare parts to 20 percent from 35 percent and should abolish additional tax.The association in its tax proposals 2016/2017, has urged the tax authorities to reduce customs duty by 15 percent to 20 percent and further requested to withdraw 15 percent additional tax.

It said, “Mass scale smuggling of motorcycle spare parts rendering legal importer at the verge of collapse.”

The following HS codes of spare parts should be granted customs duty reduction.

8409.0000; 8483.5010; 8407.3110; 8532.3010; 8714.0000; 8483.9020; 8483.1012; 8483.6091; 8544.4221; 8532.3010; 8481.8020; 8512.2010; 8536.5021; 8511.3010; 7315.1910; 8544.4221; 8421.3110; 8481.8020; 9029.2011.

Pakistan Automobile Spare Parts Importers and Dealers Association (PASPIDA)

One of the major problems in Pakistan is non-documentation of the economy and due to non- documentation the tax net cannot be expanded. If we analyze the real situation, we find that the imports through smuggling and illegal channels cannot be documented, and nor the traders dealing insuch goods can come under the tax net.

When we study in depth, we find that only those products are lucrative to be imported through smuggling and illegal channels on which the import duties are higher, or the imports are banned or restricted. There is no doubt that Auto Parts is one of the most lucrative productsfor the smuggling regime. The aggregate import duties and taxes on imports of locally manufactured parts are more than 90% while the import duties and taxes on non-locally manufactured products are around 75%. These rates are not highest rates in Pakistan for any products, but may be one of the highest in the world, and this is the reason that Auto Parts is one of the most attractive product to smugglers, as there is no way that the local bonafide importers  can complete with such smuggled goods.

The exorbitantly high rates of customs duties and taxes levied in Pakistan on import of Automotive Parts, are the part of Auto Policy, which is aimed for the development of Auto Industry in Pakistan, while no other Industry in Pakistan is protected with such high rates of duties. One cannot deny about the protection needed for the local industry, but until now in last 10 years of tariff based policy the Government is unable to achieve its targets to develop the Auto Industry at desired rate.

The commercial importers and the Government exchequer are already suffering due to this policy, but we must admit that the Industry is also not benefited from this policy, as like commercial importers the industry also can’t compete with illegal channels, as due to lower volumes and lack of advance technology, it’s cost of production is already much higher than the countries like China, India, Thailand or other regional countries.

As such, if the Government is sincerely interested to discourage smuggling, and illegal imports, it has to discourage the importsthrough illegal channels by bringing down the customs duties and taxes to a reasonable level and it is the only way by which the Government can expand its tax net and also move towards the documentation of economy.

This exclusive article published in Monthly AutoMark Magazine’s June-2016 printed edition.

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