Auto industry awaits new policy


As Budget announcement is getting closer the government has started taking feedback from various stakeholders. Many leading associations have started sending pre-budget proposals.

The announcement of new Auto Industry Policy (AIP) has been lingering on since the new government came into power last year. The concerned ministers and departments have been issuing statements assuring auto sector that AIP would be announced soon but so far nothing has come out. It is feared that the new AIP announcement may be delayed for another two months as the new Budget would be announced in June. Decisions to be taken in the new AIP may be made part of the Budget announcement.

Irrespective of delay in AIP, the industries and vendors took a sigh of relief after Prime Minister Nawaz Sharif’s assurance to the auto industry of providing every possible help to boost auto sector which is evident from his visit to Lahore Auto Show in the first week of this month.

There are many issues which need to be brought into limelight and addressed especially of small bike assemblers as these assemblers hold high hopes from the new AIP which will be announced after 15 years. For this purpose the government must take all stakeholders on board especially the feedback from small bike makers before unveiling new AIP.

This is an irony that bureaucracy of the EDB has always ignored the major players of Pakistan auto sector and they are the Chinese bike assemblers. Instead, its vested interests were active in misguiding the government in favor of Japanese assemblers who are only two out of the total number of 106 assemblers in the country. This minority has always ruled to dictate its own suggestions in AIP and kept Chinese bike assemblers on the sideline.

According to complaints, Engineering Development Board does not provide certificates and importable list for entire financial year to most of the SMEs.

The assemblers remain in confusion that they will face serious problems like demurrages at port besides failing to place future orders. For example, as per EDB advice one assembler submitted his undertaking that he will import parts under SRO 656/2006 but the Board provided the certificate valid only for one and a half month. “Due to short expiry of production certificate and importable list, how my company can import parts as it requires five to six months time to import,” the assembler raised a question.

Similarly, EDB is not cooperating in clearing refunds of bike exporters from the FBR. The board has also not been helpful in bringing uniformity in higher valuation of importable parts, majority of the assemblers complained.

In view of the above circumstances, there is a need to strictly monitor the covert activities of the EDB through check and balance under FBR having proper representation in the AIDC (Auto Industry Development Committee). FBR knows the problems of small bike assemblers which have been surviving under many threats instigated by EDB authorities.

The main problems of bike assemblers are; hurdles in getting production certificates in time from EDB, problems from the Customs Valuation Department and the payment of rebate on export of bikes. The SMEs in bike industry seek the help of FBR chairman to look into the matter as one leading bike assembler has literally hijacked the government departments by influencing the policy matters.

As earlier mentioned by MOBILE WORLD in its previous issues; precious revenue from national exchequer is being wasted due to the policies created in the past through different SROs [SRO 655/2006, SRO 656/2006 and SRO 693/2006 (List of A-Max). A handful of large scale assemblers of two wheelers and four wheelers and their vendors are fully utilizing the input output ratio certificates (IORC) facility while the small and medium sized units are deprived of this facility of major cut in import custom duties.

Stereotyped Importable lists system approved by EDB every year is in practice for the last 20 years. These lists were issued on the basis of deletion programs, while in 2005 with the help of Finance Minister Shaukat Aziz the government introduced Tariff Based System (TBS). The tenure of TBS (from 2006 to 2011) was abolished but currently the same system exists.

Under TBS, the industries are operating through three SROs – 656/2006, 655/2006 and 693/2006. Dozens of amendments had been made in these three SROs up to December 2013 without taking any input from the small and medium sized assemblers but to please the tycoons of the industry. These SROs were good opportunities for big assemblers and vendors but potential threat to survival of small and medium units.

The prevailing structure of AIDC suits only for two main Japanese assemblers but unsuitable for SMEs as well as revenue of the country. According to industry sources this AIDC is playing the role of East India Company thus projecting interest of big assemblers besides causing revenue crunch. On the other hand, because of this system Customs Valuation Ruling formulas are encouraging informal activities at the border.

Meanwhile, analysts in auto industry are urging the government to impose general sales tax (GST) on retail stage. They have offered to assist the government in this regard for achieving positive results. “GST at retail stage is the mother of all taxation solutions. Its imposition will boost the revenues,” Chairman Association of Pakistan Motorcycle Assemblers (APMA) Mohammad Sabir Shaikh said. He added that manufacturers, importers and smugglers are against the imposition of GST at retail stage.

He urged that FBR should take over the issues and policy matters like issuance of production certificates (IORCs), importable lists and survey certificates from EDB. There would be no problem for FBR as the Board was handling these issues prior to 2006. As Finance Minister, Shaukat Aziz had transferred these powers to EDB from FBR.

-Published on page#-19, March-2014 edition of MOBILE WORLD Magazine