An inter-ministerial panel will explore further ways and means to facilitate the sinking auto industry, in addition to earlier approved incentives, including a reduction from two to one percent in monthly depreciation of imported used cars, well-informed sources in Finance Ministry told Business Recorder on Tuesday. The panel will meet on Wednesday in the Ministry of Industries and Production.
The Economic Co-ordination Committee (ECC) of the Cabinet, in its meeting on December 2, directed the Ministry of Industries and Production to take the Ministry of Finance and Federal Board of Revenue (FBR) for thorough scrutiny of the recommendations, submitted by the Industries Ministry, the sources added.
However, the Commerce Ministry, which opposed any change in import of used vehicles under "transfer of baggage" scheme, has been ousted from the newly constituted inter-ministerial committee, the sources added.
The ECC had exempted auto sector from 35 percent cash margin on the letter of credits (LCs) on the remaining non-localised components for the auto manufacturers/assemblers and raw materials for the vendor industry in line with other segments of the industrial sector. The sources said that the inter-ministerial meeting would re-examine all the proposals discussed by the ECC, but did not approve them being controversial.
According to the summary of the Industries Ministry of November 28, automobile industry had not been able to sustain growth in production of cars and buses, which declined by 6.4 percent from 176,016 in 2006-07 to 164,710 in 2007-08, while during 2007-08, the production of buses was only 1,221. In a meeting with the representatives of auto assemblers and auto manufacturers, the following factors were identified for this decline:
-- Increase in prices of components and raw materials due to depreciation of rupee vis-a-vis Japanese yen.
-- Increase in interest rate for auto financing due to tight monetary policy, thus decreasing the consumer demand for automobiles.
-- Levy of five percent Federal Excise Duty (FED), increase in Sales Tax from 15 percent to 16 percent and imposition of Withholding Tax at the time of first registration of vehicle in the 2008-09 Federal Budget. Additional burden in case of Corolla cars is around Rs 90,000 per unit.
-- Imposition of 35 percent cash margin on letter of credit (L/C) for import of raw material end automobile components.
-- Reduction of duty from 15 percent to zero percent on import of CNG buses had affected the local bus assembling industry, already facing under-utilisation of capacity. Sources said that to arrest the declining trend, the ministry had proposed the following:
-- Withdrawal of five percent Federal Excise Duty and five percent withholding tax at registration stage for the industry.
-- Exemption from 35 percent cash margin on letters of credit on the remaining non-localised components for the auto manufacturers/assemblers and raw materials for the vendor industry as done for other segments of the industrial sector.
-- Auto financing be made affordable by fixing the average interest rates near 2006-07 level, i. e 16 percent.
The Industries Ministry had also proposed restrictions on import of used cars by reducing depreciation from two percent to one percent up to a maximum of 25 percent. It had also been recommended that the registration must remain in the name of Pakistani national for one year after returning from abroad, besides reduction in used vehicle life from three years to two years.
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