Dissecting the government’s new automotive policy 2021-26
KARACHI: The government’s previous automobile policy – Automobile Development Policy 2016-21 – brought many new entrants into the market who assembled different brands locally, such as Kia Sportage, Hyundai Tucson, Changan Alsvin, and MG-HS, but none only broke the dominance of Toyota, Honda and Suzuki.
This time the government was betting on large-scale production. Encourage automakers to produce more and localize in order to achieve economies of scale.
âWe need a model car with an annual production of 100,000 units,â said Engineering Board (EDB) chairman Almas Hyder. âThis will help achieve higher localization and can lead to localized motors as well. “
Pakistan’s auto industry now has the capacity to manufacture 418,000 cars per year. Reaching the 500,000 sales mark would help locate more. âNext year, the industry aims to sell 300,000 cars,â he added.
The new policy, the Automotive Industry Export and Development Plan 2021-26, aimed to provide incentives through reduced duties and taxes, especially for cars under 1000cc. In addition, the policy also seeks to pave the way for the manufacture of hybrid cars and electric vehicles.
âLast time around, we called for competition and investment. The policy for 2016-21 has paved the way for 55 new vehicles in the country, many of which have already arrived and few will soon enter Pakistan’s automotive melee, âHyder said.
The chairman of EDB, which regulates the automotive and mobile phone industries, said this time the aim was to boost the local supplier industry (parts manufacturing), increase localization , minimize car imports, start exports and also reduce the use of fossil fuels.
As part of this policy, the sales tax has been reduced to 12.5%, compared to 17% for cars under 1000cc. However, in the supplementary budget approved by the cabinet on Thursday, the government reduced the engine displacement from 1000cc to 850cc.
Tariffs on the importation of parts already located in the country have been reduced from 45 percent to 30 percent. For non-located parts, the duties are reduced by half to 15%.
For new-make or new-model tractors, tariffs on localized parts have been reduced for three years from 35% to 15% from the date of manufacture or until June 30, 2026, whichever comes first.
Likewise, the spot parts tariff for two-wheelers over 125 cm3 and three-wheelers over 200 cm3 have been reduced from 46 percent to 30 percent. On non-located parts, customs duties have been reduced from 30% to 15%. The Federal Excise Tax (FED) on all locally manufactured vehicles has been reduced by 2.5 percent.
In an effort to reduce the money problem, taxes ranging from Rs 50,000 to Rs 200,000 have been imposed depending on engine power. The tax would apply if the vehicle reservation was made by one person and the registration was in the name of another.
In addition, car manufacturers would be required to pay KIBOR plus 3% interest on the initial down payment in the event that delivery of the vehicle is delayed beyond 60 days.
Hyder said the localization would help the industry create jobs and lower the import bill. It would be mandatory for automakers to export at least 10% of what they import to manufacture their vehicles in the first five years (until 2026).
The second axis of the policy was to reduce the carbon footprint of the industry by promoting electric vehicles and hybrid cars.
âThe average car mileage in Pakistan is around 10 to 12 km / liter of fuel. We aim to increase this mileage to 24 to 25 km / liter by introducing electric vehicles and hybrid cars, âhe said.
The sales tax for locally manufactured electric vehicles with a battery of less than 50 kWh has been reduced from 17% to 1%. The policy allows importing fully built units (CBUs) of electric vehicles for one year at tariffs reduced by 10 percent instead of 25 percent. Customs duties on parts specific to electric vehicles have been reduced to 1% instead of 30%.
Parts specific to plug-in hybrid electric vehicles can be imported with tariffs reduced by three percent instead of 30 percent. Specific parts for hybrid electric vehicles can be imported with tariffs reduced by four percent instead of 30 percent.
On Thursday, however, the sales tax on imported electric vehicles was raised from 5% to 17% in the supplementary budget.
Among businessmen who have expressed interest in the electric car trade, they have shouted at the government’s inclusion of hybrid cars in politics, saying it makes the electric vehicle trade unsustainable.
Hyder said the lack of charging infrastructure in the country would not allow a healthy penetration of electric cars in the country. But that was not the case with hybrid cars.
Hybrid cars use 30% less fuel than fossil fuel vehicles, which means that the penetration of hybrid cars would reduce fuel consumption in the country.
Indus Motors Company, which assembles and sells Toyota cars, has already announced plans to invest $ 100 million to set up local production facilities for hybrid cars and expects the project to go live. in three years.
âBuilding charging infrastructure in the country is an expensive business, and the government will not be able to do it,â he said. âIt would take around $ 40 billion to $ 50 billion to have this charging infrastructure in the country to pave the way for significant electric vehicle penetration. The government does not have a lot of money.
Moreover, he added that there were very few countries in the world where there was a recognizable penetration of electric vehicles like Finland or Norway.
Pakistan is tech-savvy and rarely a forerunner. âPakistan will phase out fossil fuel vehicles after they are phased out worldwide. And only then will we make electric vehicles, âhe explained.
He also suggested that electric vehicles could be used on fixed routes with charging stations at the start and end of the route. âLarge vehicles use more fuel and providing them with charging infrastructure is comparatively easier,â he said.
The use of electric vehicles could help reduce the oil import bill as well as air pollution.
Prime Minister Imran Khan also set an electric vehicle penetration target where 30% of traffic would be electrified by 2030. But according to Hyder, the vision 2030 does not include hybrid cars and only addressed the penetration of electric vehicles. . âThe goal is hard, but achievable. “
Hyder said the policy did not reduce taxes on imported e-bikes because much of the bike parts were already localized and there were companies that already made electric bikes.