Globally, the automobile industry is considered to be the mother of all industries and an engine of growth for the economy. It is an indisputable fact that countries that have achieved major industrial growth in the last century have focused on the auto industry, eg USA, Japan and, in more recent times, India, Korea, Thailand, Taiwan, Malaysia, etc.
Let us study the example of India and Thailand, two countries that have developed their auto industry at a very fast pace and compare how their auto sectors have played a vital role in their economic development.
TABLE A. GROWTH OF THE AUTO INDUSTRY As we can see above, the favourable policies in India and Thailand have helped the two countries in the growth of the automobile sector. The vendor base, motorization level, production capacity, exports by vendors, etc have all showed tremendous growth.
TABLE B. CUSTOM DUTY COMPARISON If we look at the comparison of CBU duties in the three countries. The CKD duties in Pakistan are the highest whereas CBU duties in Pakistan are lowest as compared to India and Thailand. There is a fair amount of protection to the local industry in India and Thailand, but in Pakistan the gap between duties on local manufacturing and imported vehicles is only 15%. Such a small gap threatens the local manufacturers.
The gap between the CBU and CKD duties has enabled Indian and Thai Car Manufacturers to match domestic demand with increases in production in a more efficient manner, when compared with their Pakistani counterparts.
TABLE B. USED CAR COMPARISON If we compare policies regarding used cars, both Thailand and India have strict conditions regarding import of used cars. These conditions make it quite difficult to import second-hand cars. This has been done to promote sales of locally manufactured cars and protect them from the import of second hand cars.
Apart from the tariff barriers mentioned in table, the Indian Auto Industry is also protected through non-tariff barriers. For example imported vehicles need to get tested by testing agencies set up in India to ensure that poor quality, fuel inefficient old vehicles do not enter the country.
The vehicles have to conform to Indian EPA standards. These EPA standards are yet to be developed in Pakistan so the doors are open for sub-standard vehicles with higher fuel emissions.
Only right hand drive vehicles with speedometer in Km/hr reading and signalling system for Keep Left traffic system are permitted in India. All in all the Indian Auto Policy strongly discourages import of second-hand or reconditioned cars, in fact makes it virtually prohibitive.
The duty on used cars in Pakistan is also very low compared to India and Thailand. The high amount of duty on second hand cars in India (150%) and Thailand (80%) and strict import conditions restrict the import of second-hand cars. Again these countries have policies that favour the local automobile manufacturers.
The policies of the automobile industry in India and Thailand do not only support the local industry, but have also been the cause of economic growth of the economy. Sadly, despite the huge potential, a clear strategy for the auto sector in Pakistan is still a dream; in fact, we have yet to develop a comprehensive Auto policy.
Every now and then there are vested interests and lobbies that try to unsettle the government's long term plans (eg second hand car lobby, car importers etc).
The government also puts unnecessary pressure on Pakistani Automakers to reduce prices when the government is itself the biggest gainer. On an average, the total government duties and taxes levied on a car with a base price of about Rs 900,000 come to around Rs 250, 000.
Obviously, unlike the car manufacturers, the government has zero equity, zero risk and zero management problems.
And, to top it all, the government has recently taken certain decisions that totally negate a long-term approach. In fact these decisions are reversing the gains and growth made by the Auto sector.
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Pakistan India Thailand
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Auto Sector
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Motorization Level (Cars/1000 people) 8 13 25
Total Production Capacity (cars/year) 160,000 1,600,000 1,100,000
Exports of Passenger Vehicles (2004) Nil 130,000 250,000 units
No of Auto Vendors 300 500 1,809
Exports of Auto Vendors $30 mil $760 mil $817 mil
2003-2004
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*Custom Duties Excluding Sales Tax and other levies
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India Pakistan Thailand
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CKD Duties 20% 35% 30%
CBU Duties Seating Capacity Up to 1500 cc 50% PC Custom Duty
9 or less 1501cc-1800cc 65% 80%
100.2% l80lcc+ 75% Excise Duty
Below 2400cc 35%
Below 3000cc 41%
Above 3000cc 48%
CV Custom Duty
40%
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INDIA PAKISTAN THAILAND
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Conditions
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Max 3 yr old Model allowed. Any Make/Model Any Make/Model
Registration in importers name for one year. 4000-5000 Units Per Annum Foreigners living
No Gift Scheme Gift scheme (New & 3 years in Thailand for more
Volume of Imports (Insignificant) old models allowed) than one year
Registration in the
name of user
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Special Conditions
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1.Right Hand Drive, speedometer in Km/h 1.Test of exhaust emission at
2.Importer has to submit pre-shipment certificate Environment Protection Office
3.Confirmation to original homologation certificate No Conditions
issued at registration
4. Importer has to submit the vehicle to the
Indian Testing agency
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Duty
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Basic Duty 105% * New 2yrs
Additional Duty 24% Upto 800 US$4000 $2000 Passenger Car 80%
Misc. Duties 1.125% 801-1000cc US$5000 $2500 Commercial Vehicle 40%
Total 156.5% 1001-1300cc US$10000 $5000 (Same as new CBU duty rates)
On all used passenger vehicles 1301-1500cc US$14000 $7000 -
1501-1600cc US$17000 $8500 -
160-1800cc US$21000 $10500 -
upto 1500cc 50% 25% -
1501cc-1800cc 65% 32.5% -
>1800cc 75% 37.5% -
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