A much-awaited five-year Auto Policy (2015-20) was once again blocked by the Economic Co-ordination Committee (ECC) of the Cabinet with the direction that further consultations be held, after Federal Board of Revenue (FBR) rejected the incentives proposed by Khawaja Asif-led committee for existing car assemblers, well informed sources in Engineering Development Board (EDB) told Business Recorder.
Minister for Water and Power, Khawaja Asif, (convenor) and Chairman Privatisation Commission(PC), Muhammad Zubair (deputy convenor) who worked for more than a year on the new policy, were seen visibly unhappy with the decision of Finance Minister Ishaq Dar to defer the policy further, the sources continued.
Khawaja Asif, sources said, said the sub-committee held threadbare discussions with all the stakeholders including the private sector, adding he is unable to understand why the policy has again being deferred. "Both Khawaja Asif and Muhammad Zubair expressed their reservations at the decision of Finance Minister who perhaps was not briefed properly," said one of the participants.
Khawaja Asif, he said, stood up from his seat, whispered in the ear of Finance Minister and left the meeting. Finance Minister switched off his own mike so that the participants do not hear the words of Khawaja Asif. Official documents obtained from EDB reveal that there is a difference between the EDB and FBR with regard to incentives provided for the initial two years. EDB feels that new investors need to be incentivised in the initial two years to establish its vendor base.
EDB proposed a 10 per cent duty on import of both localised and non-localised parts for an initial period of two years thereafter it will be 35 per cent (proposed rate for last three years) on the parts not-localised as per localisation plan provided to the new investors of cars and LCVs. FBR did not agree with the single rate of duty for localised and non-localised parts.
The new draft auto policy envisages four categories of new investment with different incentives; (i) category -A- Greenfield investment is defined as the construction of new and independent automotive assembly and manufacturing facilities by a new investor for the production of vehicles in Pakistan; (ii) category-B- Brownfield investment is defined as the revival of an existing non-operational or closed auto unit either independently by original owners or new investors or under joint venture agreement with foreign principal or by foreign principal independently through purchase of plant; (iii) category-C new investment on existing premises for production of new variant not produced before, with body shell on new platform, and does not include incremental changes, improvements or face lift and; (iv) category-D: Greenfield investment by auto parts makers. The ADP (Auto Development Policy) extends the scope of new investment policy by auto part makers in order to attract global tier I and global tier II auto parts manufacturers to invest in Pakistan either independently, or in joint venture or technical assistance agreement with Pakistani auto parts makers. Scope shall be extended to local APMs investing in new plant to produce critical components of engine, transmission and suspension not produced before any APM/OEM in Pakistan.
According to the auto policy (still not approved) category A, B and C investors should be entitled to the following incentives: (i) import of non localised parts at 10 per cent rate of customs duty and localised parts at 25 per cent duty for a period of four years in respect of passenger cars and LCVs from 800 cc and above category; (ii) import of 100 per cent parts at 10 per cent customs duty for a period of three years in respect of passenger cars below 800 cc category; (iii) import of parts at prevailing custom duty applicable to non-localised parts for a period of three years in respect of buses, trucks, tractors and prime movers and; (iv) for motorcycle industry existing policy as approved by the ECC and notified by FBR to continue.
MKD operations- import of 100 per cent Medium Knocked Down(MKD) parts at 25 per cent rate of customs duty for a period four years in respect of passenger cars after which CKD tariff regime shall apply. Other incentives for CKD &MKD operations- all incentives, facilities and tax exemptions available under Special Economic Zone (SEZ) Act shall be available to all category. A investors including 100 per cent exemption from custom duties and taxes on the import of plant, machinery, equipment and tooling such as dies, jigs, and fixtures for production, inspection and testing of vehicles on one time basis. A new investor will be allowed to import 100 vehicles of same variant in CBU at 25 per cent of the prevailing duty for test marketing.
The policy had proposed that the category B investor will be entitled to all incentives under SEZ Act. Auto sector analysts argue that an attempt by the MoI and the EDB to get approval from the ECC of the much illusive and now secretive ADP-II has once again met with failure as the ECC deferred a decision and referred it back for further consultation. The decision of the august body managing the economic affairs of the country seems well placed in light of some very strong remarks by FBR. The FBR found various grounds to oppose different incentives and policy measures in the policy. Ministry of Commerce and Ministry of Communications have also recorded their dissenting notes.
While major dissent is on offering tax breaks to new investors in Category A and Category B, FBR has also recorded disagreement on ''Eligibility Criteria'' of ''New Investors'' as it "lacks precision". FBR also found lacking the mechanism for establishing ''material deviation'' in case the new investor did not fulfill the requirements under which he was offered incentives. Ministry of Commerce has opposed extending SEZ Act incentives to the New Investors unless ''processes mentioned in the SEZ Act are also applied''.
Opening up of commercial import of used car has found favor with FBR as is increasing age limit to 5 years for specialized vehicles. EDB has opposed the idea of commercial import of used cars on the grounds that it will discourage new investment in the sector. FBR has favoured bracketing all specialized vehicles such as dump trucks that can be converted into trucks and buses in one category to have a better control and monitoring system. On the other hand EDB continues to favor import of dumpers designed for off highway use. Ministry of Commerce wants a policy in place that allows options for import of "prohibitively expensive and sophisticated vehicles/machinery".
Proposals on "Regulatory Mechanism for Quality, Safety & Environmental Standards" found favor with Ministry of Communication but they wanted ''NH & MP under Ministry of Communication to have a lead role to play. However, NTRC can act as a facilitator in developing regulations". Ministry of Science and Technology on the other hand wants PSQCA and PNAC to be considered for the purpose. Interestingly, EDB has agreed with both.
"Creating R&D Design and Testing Infrastructure" proposals have promoted comments from Ministry of Commerce which has opposed any allocation from EDF and has proposed funds to be arranged from the PSDP. MoS&T has asked that PNAC be taken on board for the initiative while FBR has opposed 10 year tax breaks for any such body. Essentially, all such projects are on a non-profit basis but it appears EDB and MOI are trying to create another revenue generating body. FBR is very much alive to the opportunity for collecting revenue.
''Human Resource Development (HRD)" proposals went unchallenged for a change. None of the ministries nor had FBR any comment to offer. "Ensuring Consumer Welfare" has attracted adverse observation from FBR who have found the policy short on detail and lacking specifics. They have recorded their observation as "Policy needs to be specific and detail with regard to passing on benefits of tax breaks to the consumers in terms of quality and price of the vehicles".
When contacted Chairman Privatisation Commission Muhammad Zubair who held dozens of meetings with different stakeholders prior to finalising the policy, confirmed the policy has been deferred on the plea of FBR, though he does not agree with the latter's arguments. Another senior public office holder told Business Recorder that the existing assemblers always block new investment in the country, adding that incentives proposed in the policy for the existing OEM will be rationalized.
Comments
Comments are closed.