The Engineering Development Board (EDB), which blames Pakistan Auto Manufacturers Association (PAMA) and Federal Government for the failure of Auto Industry Development Programme (AIDP) 2007-12, has started preparing a new five-year Auto Industry Plan (AIP), sources close to CEO of EDB told Business Recorder.
"We have discussed the reasons behind AIDP''s failure to induce representatives of the auto industry last week to forget (about) unlimited protection and prepare themselves for competition as the government is considering lowering tariffs," the sources said.
The AIDP was formulated in 2007 to facilitate industry for smooth transition from deletion program to Tariff Based System (TBS). The AIDP envisaged policy interventions to ensure consistency and predictability of tariff and non tariff measures to encourage OEMs, vendors as well as new investors to make sound investment decisions without any fear of unforeseen change in policy framework. The five year tariff plan was also linked to localisation of high value added critical components.
The five-year tariff plan, the sources said, remained unimplemented during the previous three years because of PAMA and the federal government. For instance in 2009-10, AIDP was not implemented at the behest of auto industry, in 2010-11 the plan was deferred by the government and in 2011-12 status quo was maintained by the government.
Other factors which blocked progress on the AIDP were as follows: (i) Actual production remained at 156,000 against projected 500,000 cars by 2011-12; (ii) lack of new investments in automotive sector; (iii) critical components identified under AIDP not localised; (iv) closure of few units and discontinuation of two high selling variants; (v) weak implementation mechanism;(vi) lack of funding provisions;(vi) conditions laid down for new investors unfavourable and incentives inadequate; (vii) unrealistic growth targets; and (viii) consumer welfare not addressed. The auto industry enjoyed unprecedented financial benefits announced in the AIDP but the plan was not implemented despite the fact that they were taken on board prior to finalisation of plan.
The AIP provides a flexible investment policy for new investor with tax and tariff incentives as follows: (i) a new investor will be entitled to import 100 percent CKD, whether or not locally manufactured, at a rate of customs duty applicable to non-localised CKD, in the respective vehicle category for a period of five years from the start of assembly / manufacturing operations;(ii) a new investor will provide a five-year phase-wise localisation plan; (iii) non adherence to the localisation plan shall result in withdrawal of tariff incentives for that particular year;(iv) a new investor setting up a green field project will be entitled to incentives as available to Special Economic Zone (SEZ) units ie tax holiday for a period of ten years from the date of commencement of commercial operations and exemption from customs duties on import of capital goods (plant, machinery and equipment) for setting-up of the project;(v) encouraging exports through incentives;(vi) to enhance exports of CBU and parts the OEMs and Auto Parts manufacturers would be eligible for duty incentive on CKD parts as well as raw material, components & sub-components and sub-assemblies as per following schemes; (vii) export incentives for CBU defined under SRO 656(I)/2006 are being enhanced from existing 100 percent to 150 percent for import of duty free CKD; (viii) the export of auto parts will be exempted from duty on components, sub-components and sub-assemblies. Provision for such incentive is proposed to be created in SRO 656(I)/2006; (ix) profits earned from exports would be exempted from corporate tax; (x) Duty and Tax Remission on Exports (DTRE) scheme under SRO 450(I)/2001 will continue, whereby an industry is entitled to avail benefit of zero percent duty and sales tax on import of inputs used for the manufacture of goods meant for exports; and (x) Duty Drawback Scheme(DDS) under SRO 450(I)/2001 will also continue whereby an industry is entitled to claim duty drawback on inputs used for export. The AIP also envisages priority development of quality and safety standards for all vehicles in the following five critical areas during the first year of policy period ie brakes, emission, impact testing, suspension- wheel rims and tyres and lights.
Other performance standards (fuel efficiency, noise and ergonomics) will be developed and adopted latest by the fourth year of the AIDP.
The AIP envisages separate national standards for trucks and buses, including standards for bus and truck bodies to eliminate the trend of using same chasis for both trucks and buses. The AIP will integrate efforts to adopt global harmonised vehicles regulations. Internationally, the major forum for this role is the World Forum for Harmonisation of Vehicle Regulations (WP.29) under the United Nations Economic Commission for Europe (UNECE).
AIP would continue to focus on implementing proposals as contained in AIP with regard to setting up of Auto Industry Skill Development Company (AISDC) as well as establishment of two centres of excellence by AISDC one each at Karachi and Lahore.
Automotive Testing and Training Centre Ltd (AT&TC), Karachi Electric Supply Pak German Auto Training & Testing Institute, Lahore (Spinning Machinery Corporation). These will be supported through HEC, NAVTEC, TEVTA, VTCs and TUSDEC. Policy also focus on implementing JICA''s recommendations with regard to short term training program by Japanese technical experts, improvement program for vocational skill training and establishment of the skill certification system.
According to the new policy amount of advance payment for booking will be limited to 75 percent of the total vehicle price and price will be fixed at the time of booking while interest on the advance payment for the period from payment till delivery will also be discounted from the final payment.
According to the EDB this arrangement will help shorten delivery time and ensure availability of vehicles with the dealers and OEMs. Matching grants will be provided to enhance vendors'' technology levels and encourage localisation through an Engineering Industry Development Fund (EIDP) for technology, research, design and development. This fund is to be created through grants by the Government, International Donor Agencies or share from Export Development Fund (EDF).
Preference will be given to hi-tech, high value added parts including alternators, starter motors, water pumps, fuel pumps, engines, transmission systems, regulator rectifiers, ignition coils, fuel injection systems, pistons, fuel cocks, automotive electronics, and clutch assemblies. To curb the misuse of import schemes and to provide an opportunity to expatriate Pakistanis to buy new Pakistani assembled cars instead of used cars, the AIP envisages duty free purchase of locally manufactured cars. This would help improve existing capacity utilisation of domestic OEMs and reduce fixed cost incidence per car for overall reduction in prices. This scheme will be extended only to expatriate Pakistanis who have remitted at least Rs 1.5 million to Pakistan during past one year through banking channels.
At present various schemes under trade policy are being misused such as importing sprinkler lorries and water bowsers under ''special purpose vehicles'' category and converting these to trucks by removing a simple tank from the chassis, thereby adversely hurting the local industry.
AIP will rationalise the age limit for used vehicles imported under any scheme to three years for all vehicles types. The plan will also rationalise the used car scheme through following effective regulation so as to inhibit misuse by importers and non-entitled persons: (i) there will be a single rate of duty for vehicles of all origins. SRO 577(I)/2005 is proposed to be revised to read [all origins];(ii) tariffs for used vehicles to be revisited for rationalisation. In this regard it is proposed to take the base year price for the new car and depreciate it @1 percent per month to arrive at the FOB price and add other incidental costs to arrive at CIF price for ascertaining the duty at prevailing CBU rate instead of a fixed rate of duty; (iii) imported used vehicles must be registered in the name of the applicant (returning expatriate Pakistani);(iv) applicant must have a valid driving licence; and (v) 1 percent depreciation per month shall be allowed to a maximum of 36 percent . Globally, production bases for foundry products are relocated to regions where labour cost is competitive and environmental regulations are less stringent. This provides ample opportunity for Pakistan to become a global source for casts, forged and machined parts. The EDB has proposed duty exemption on plant, machinery and equipment for forged, cast and precision machined parts.