The National Tariff Commission (NTC), for the first time in Pakistan's history, is likely to announce the audit of local industry for tariff evaluation to facilitate an importer going totally against its objectives, in Islamabad on February 1.
The NTC was established under an act of parliament (Act VI of 1990) passed in June, 1990, to advise the government on tariff measures or other forms of assistance for providing protection to the indigenous industry, improving its competitiveness, and promoting exports from Pakistan.
However, in a recent turn of events, the NTC for the first time has decided to use its authority against the local industry and conduct an audit on Yamaha's proposal to evaluate local motorcycle tariffs with a view to facilitate imports. According to industry sources, this case will be the first of its kind in Pakistan where an importer's comments are being used against the local industry.
According to reports, the NTC has called a meeting of manufacturers, vendors and importers of motorcycles and spare parts in Islamabad on February 1, after which a decision is likely which would allow new investment in the domain of two-wheelers industry by putting at risk the investment that is already there in far greater size.
Local motorcycle assemblers and vendors expressed concern over this study by NTC as according to them, this simply appears as a facilitation exercise for a blue-eyed entrant, through heavy concessions in duties and taxes. The amount of concessions being demanded and made possible through this exercise would translate into financing the purported investment capital free. The amount of concessions over a five-year period may well be more than the promised foreign investment coming in.
In addition, according to Pakistan Automotive Manufacturers Association (PAMA) data, the two-wheeler industry has shown recovery with a 13 percent increase in production during the last fiscal year. The present tariff structure allows import of completely knocked down unit (CKD) at 15 percent duty, and an approved assembler, wanting to import certain localised parts, is allowed to do so at a duty rate of 47.5 percent. Under Automotive Industrial Development Program (AIDP), the current CKD was supposed to be further reduced to 10 percent in the current fiscal year.
This tariff structure has worked well for the industry and, at present, more than 70 motorcycle assemblers and another around 20 manufacturers of three-wheelers are now part of this vibrant and growing industry. With regard to the proposal of Board of Investment (BoI) at allow import of CKD at 5 percent customs duty to a new entrant, the Ministry of Industries is of the view that the same may invite litigation on the point of discrimination, as two separate tariff treatments for the same product cannot be accorded simultaneously.
Since components of CKD of motorcycle are chargeable to customs duty at 15 percent, an even lower rate for localised parts, as proposed by BoI, may lead to "reverse cascading" which is against the spirit of the scheme of customs tariff followed across the globe.
On the issue of remaining parts and components of CKD, the Ministry of Industries is of the considered view that preferential treatment may not be allowed in relaxation of the existing policy. Accordingly, these parts/components should be allowed at the applicable CKD rate of duty, which is at present 15 percent, and would be reduced to 10 percent in case the AIDP is implemented.
It may be recalled that the BoI had made a presentation in the Cabinet Committee on Investment (CCoI) meeting and stated that BoI, being a facilitator of investment in the country, strongly feels that new investment in motorcycle industry needs to be encouraged through reducing the present prevailing duty of 15 percent on CKD parts to 5 percent for 100 percent parts for five years, starting from the start of production, as an incentive for new investment in Pakistan. Fortunately, better sense prevailed and the proposal was rejected by all present with no less than the Prime Minister in the chair.