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Special Report

December 27, 2013
 

New Auto Industry Policy

Auto Policy may be reviewed Sabir Shaikh MOBILE WORLD Magazine
 

The solution of all problems being faced by Auto Industry could be achieved through a Two Point agenda of APMA (Association of Pakistan Motorcycle Assemblers) forwarded to Finance Minister Mr. Ishaq Dar on November 2, 2013. Muhammad Sabir Shaikh, Chairman (APMA) claimed this while talking to MOBILE WORLD. He said we need the following two types of duty structure that should be immediately implemented by government through its new Auto Industry Policy:

1. A uniform rate of Custom duty on spare parts for all types of vehicles including motorcycles @25% for all kinds of Parts, Localized, Non Localized, Assemblies, Sub assemblies, Components, and Sub component etc., for the after market and assembly of vehicles.



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2. CBU rate of Custom duty @45% on all types of vehicles including motorcycles, to be applied whether it is 100% CKD of new models or in SKD condition the rate of duty should be the same. It will encourage introduction of new models in Pakistan.

“This is the only way out to end corruption, smuggling, under-invoicing and nepotism in the automobile sector of the country”, he said. Initially, this policy may be adopted for two years trial period I am sure after assessing its good results the government should make it permanent policy basis, he added.

It may be mentioned here that Ministry of Industries and Production (MoI&P) has reportedly started work on new auto industry policy in the light of Economic Co-ordination Committee’s (ECC) guidelines. A committee comprising Minister for Water and Power Khwaja Muhammad Asif (convener), Chairman Board of Investment (BoI), Secretary Industries and Production, Chairman Federal Board of Revenue (FBR) and Chief Executive, Engineering Development Board (EDB), has been constituted to finalise the auto industry policy draft within 45 days starting from October 2, 2103.

Motorcycle parts and imports-1

According to informed sources, Finance Minister Senator Ishaq Dar had expressed serious reservations over local car assemblers for not showing desired growth despite enjoying financial incentives on the expense of tax payers. The sources said that Secretary Industries and Production, Shafquat Naghmi, who is also Chief Executive of Engineering Development Board (EDB), chaired a hurriedly called meeting in the Ministry and expressed annoyance over the ‘lazy’ officials of the EDB, who did not prepare any reasonable draft of the policy to be presented to the ECC for approval. The EDB officials have been accused of showing leniency towards the auto sector for personal gains. Officials in the EDB also accuse each other for looking after the interest of different companies in private meetings. Official documents reveal that government has authentic information that auto sector is showing negative growth. Finance Minister, who is also the chairman of the ECC, recently expressed concern that this sector was not showing any growth for many years notwithstanding a number of incentives given by the government.

The ECC was further informed that not a single car manufacturer in the country could complete its deletion programme even after the extended period of the prescribed time-frame. Moreover, their products were costly and based on obsolete technologies. It was pointed out that the manufacturers were exploiting consumers by unduly keeping the latter’s advance money for several months and earning profit on that money before actual delivery of the vehicles. Official documents further disclosed that an auto industry policy was being formulated and its first draft was ready. The ECC, however, observed that the draft policy should be based on thorough review of the existing facilities being offered to the auto industry, the need for new entrants in the sector, the existing duty structure on import of motor vehicles, the EDB standards, the requirement of a long term policy framework etc.

Ministry of Industries and Production has also been directed to take into account the proposals from the manufacturers/ dealers and vendors of the auto industry. The sources said Secretary Industries and Production has directed the concerned officials to prepare draft of auto policy within three days so that it could be presented to the committee as early as possible fearing that in case of delay, Finance Minister will be further angered. “There was an emergency like situation in the Ministry of Industries and Production with regard to preparation of auto policy draft,” said an official on condition of anonymity. PML (N) parliamentarians in the past had criticised local auto sector for overcharging consumers through dealers’ network.

It may be pointed out that Secretary, Ministry of Industries & Production (MoIP) had called a meeting in Committee Room of (MoIP), Islamabad on 28th October 2013. For this purpose the ministry had invited 12 selected representatives from leading organizations of the over all auto industry. But amazingly some unscrupulous elements and mafia-styled owners stormed the meeting place through an army of more than fifty participants. Hence the event was flopped and Secretary Industries was compelled to ask five leading Associations of Auto Industry to forward specific proposals (2 pages) about each segment of Auto Industry for consideration of the Committee latest by 31st October 2013.

In its written proposals for Auto Industry Policy (AIP) to Finance Minister as stated above, and copies dispatched to Chairman BoI, Chairman FBR and Secretary Industries, the APMA Chairman Muhammad Sabir Shaikh strongly criticized the prevailing policies and urged for drastic changes in this system. He said there should be no role of EDB in any imports procedure, only FBR and its direct related departments are sufficient for this purpose. Issuance of Production certificates and importable lists by the EDB was waste of time of industry especially for the bike assemblers, and it was promoting corruption.

Citing the example of corruption he said there were eight different following processes of Custom Duty Structure for Import of Auto Parts in the prevailing system:

1. Imports under SRO 656/2006 custom duty @10% (for non localized parts).

2. Commercial Imports by the OEM’s and importers @50% customs duty.

3. Import under SRO 693/2006 custom duty @10+28.75 = 38.75% (for localized parts).

4. Import under SRO 655/2006 custom duty @5%, 10% & 20% (by changing the name of the parts as sub assemblies,components and sub components).

5. Import by the importers/ OEM’s through mis-declaration, under Invoicing, mis-declaration of total weight because on motorcycle parts custom issues higher valuation ruling but on same parts made by same materials and technology for cars and other vehicles the valuation ruling is on very lower side and importers were taking the benefit of lower valuation of car parts declaring car parts but importing motorcycles parts.

6. Open smuggling at Karachi and All dry ports.

7. Import through Afghan Transit Trade.

8. Import under SRO 655/2006 of Raw materials @ 0% custom duty.

Replying to various queries Sabir Shaikh said he can pinpoint each and every part of automobiles, provided he is given audience by the minister. For example, he said, there is Front shock absorber set being used in each and every motorcycle. If you go through the record of EDB, it shows that this is a localized part while in fact it is not even 5 percent produced within the country. Many years back M/s Agriauto Industries Ltd., did start its manufacturing/ assembling but very soon the plant was closed due to smuggling culture. The same case was with car shock absorbers.

There are many reasons for inadequate production of local auto parts like; high cost of labor, power & gas load shedding, law & order situation, lack of proper infrastructure, higher rate of taxation under IMF & WB conditionalities and in-efficient banking system in the country. Therefore, the ground reality is that large numbers of auto parts are being imported from China because they are cost effective in the present circumstances. So let us import the auto parts on a uniform rate of duty for all segments of industry without any discrimination. With the passage of time and due to certain inside and outside pressures, it would be automatically localized.

APMA LOGO

We understand that there is a dire need to save the local industry and this can only happen by increasing prices by the Chinese assemblers, decrease in tax rates, easy policy by the government and revamping of customs valuation system, scrapping of Tariff Based System including IORC’s system, importable lists loaded in the custom system by the EDB which is totally a fraud system prevailing for the last 8 years.

The industry badly needs an Auto Industry Policy (AIP) excluding the role of IORC by the EDB. There should be no SRO from the government of Pakistan and government should also ensure uniformity for importing part from respective principles on one customs duty rate. For example, for localized parts lists there are different custom duty rates while different rates prevail on non localized parts list. There are also different rates on assemblies and sub assemblies. We have to understand that all these parts are same and all the lists made by EDB/ FBR for local parts in the past are not correct.

Many importers also involved in mis-declaration, under Invoicing, smuggling and also using Afghan Transit Trade route, because of unavailability of uniform policy for importing parts.

Shaikh said, we question the policymakers and the government as what has been achieved in terms of localization of parts and accessories in the last 15 years. For example, a leading bike assembler claims to have achieved 94 percent parts localization including engine parts. If he is right in his stance and imports only remaining 6 percent parts for his production line then why EDB issues IORC in his favor and how he is the biggest importer of all auto parts from China. Honesty demands that he should and the EDB authorities also openly disclose the list of those so called 6 percent parts being imported by him and the other 94 percent parts being manufactured indigenously. In a nutshell, the government should investigate the achievement in localization by all vehicle assemblers especially as consumers were not getting any benefit of higher localization in costly bikes and cars, Shaikh concluded.

Published on pages#17-18-19 in November-2013 edition of MOBILE WORLD Magazine





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