Expressing concerns over changes in auto industry development policy (AIDP) 2016-18, the auto industry experts said the government has brought multiple changes in the policy that will result in shaking confidence of new players and halt current players to increase their capacity.
Former chairman Paapam, Aamir Allawala said: "Industry pinned hope with new AIDP and it started bearing fruits as European, Korean and Chinese players were keen to invest in Pakistan. However, hardly two years have passed by and the government has brought multiple changes to the policy. It will result in shaking confidence of new players and halt current players to increase capacity."
He added that they have to ensure consistency of policies and a predictable regime to motivate existing and new players to invest. "Auto industry is employing 2.5 million human resources directly and indirectly and can lead the economic boom. We have to learn from catastrophic results of deviating from policies back in 2007," he added.
"As per ADP, the raw material was to be imported at 1 percent for next five years however, first change came with additional 1 percent duty on import of raw material through SRO 1178(1)/2015. Lately, another 1 percent was added to the duty in 2016 budget which resulted in 3 percent duty on import of raw material. This increase from 1 percent to 3 percent was supposed to be a temporary move but it still exists in the current duty structure," said Aamir.
He said non local raw material will be imported regardless of the import duty even if suppliers want to produce locally. "Hence, this temporary increase is reflected in increased cost of auto parts," he added. He added that third change came with RD imposed on new CBU vehicles with 80 percent duty. "Then Sindh High Court suspended RD on 12th of Feb."
He termed retraction on used cars import policy as a major blow to industry and new investment. "Pakistan is the only automaker among 40 countries with a used car import policy. Industry was hopeful the government will make a decision of used vehicles import payment to be done in foreign currency as required by SRO 1067(1)/2017 to curb misuse of gift and baggage scheme but it short lived as the government succumbed to the pressure from an undocumented and illegal sector and stepped back," he added.
Also, he added, there is a clause that allows CKD to 25% localization for amax parts and CKD non-localize at 10 percent for non-amax parts. Hence, he added, these issues with the ADP are making it less effective with no benefits to local producers.
"There is a need to rationalize the ADP in order to take maximum benefits from it. Otherwise the local producers will accrue no benefit from the current ADP. There is a need to rationalize policies at government level," said Aamir.
"Observing these continuous changes and instabilities in ADP 16-21, the investor is reluctant to make investment in the automotive sector. Part manufacturers are in no position to compete with parts supplies by overseas suppliers to OEM's while new OEM's entering in the industry with no localization motive but are still enjoying the incentives of reduced duty structure," he said.
"Industry only wants consistency of policies. Once the government is able to create a predictable and stable regime, auto industry will serve as the launch pad for economic growth," he concluded.
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