The auto parts manufacturers have criticised the government for not offering incentives to local vendors at par with Japanese Original Equipment Manufacturers (OEMs) in the auto policy. The Automobile Development Plan (ADP) 2016-21 was announced on March 21 last after a delay of almost four years.
On its page 50, the 5-year auto policy has laid out a tariff plan for vendors to import their raw materials for production of auto parts under the SRO 655. However, barely few weeks after announcing the 5-year auto policy, the government has made the first intervention in duty structure guaranteed in the ADP.
A delegation of Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM) met top government functionaries in Islamabad this week and apprised them about issues being faced by the auto parts vendors. Talking to Business Recorder, Chairman PAAPAM, Mumshad Ali, said that sanctity and predictability of the policy was disturbed as Regulatory Duty (RD) ranging from 10% to 30% was recently imposed on auto grade steel sheets and special alloy steels.
He said that the purpose of announcing a 5-year tariff roadmap was to ensure stability of policy to enable the auto parts manufacturers to plan their product cost and future investments to compete with imported parts. Mumshad Ali pointed out that during the tenure of the first auto policy (2007-2012), the government made over 30 interventions in the tariffs and taxes governing the auto sector. This, he said, was one of the main reasons why the first auto policy was not able to achieve the desired objectives.
"If the government continues the same practice in the new auto policy, it will unfortunately meet the same fate", he predicted. Chairman PAAPAM maintained that no regulatory duty would be imposed if the automobile assemblers import complete parts directly from their Japanese suppliers. Hence, the Pakistani auto parts manufacturers had been put at a disadvantage as their products became uncompetitive against direct imports by auto assemblers.
Mumshad Ali pointed out several examples in the SRO 568, through which Regulatory Duty was imposed: for example, the raw material imported under SRO 678 and SRO 565 was exempted from RD imposition however raw material imports of auto parts vendors under SRO 655 was not exempted despite the fact that tariffs for auto vendors had been fixed for 5 years under the auto policy.
Chairman PAAPAM also criticized the new auto policy for providing nothing to the 2,000 local auto parts vendors. He said that the localization of around 40% remaining high technology auto parts, not yet being produced in the country, was the only way to further reduce car prices. He noted that at the last minute, the already agreed SEZ incentives for local manufacturing of high tech auto parts, which required huge capital investments, were also excluded from the finally approved auto policy.
The duty on existing OEMs had been reduced in the auto policy from 50% to 45% (in case of localized parts) and from 32.5% to 30% (in case of non-localized) parts. On the other hand, duty on import of sub-components by vendors was increased from 5% to 10% and regulatory duty was imposed on imports of raw materials. Chairman PAAPAM wondered how Pakistan could achieve 7% growth target fixed by the Finance Minister if the domestic industry was discouraged from making investments that was needed to create economic activity and millions of jobs for skilled workers, technicians, engineers and management professionals.
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