The Auto Sector and Engineering goods industry is considered to be a key player in achieving economic development objective. According to Engineering Development Board (EDB) authorities; Effective rationalization of tax and Tariff Structure, procedures, regulatory environment etc, have been the major measures undertaken by the Government so as to enable the industry to play a lead role towards product diversification and market expansion. However, the basic issues related to the industry are yet not resolved.
Chairman, Association of Pakistan Motorcycle Assemblers (APMA), Mohammad Sabir Shaikh in his letter addressed to various Government functionaries has openly discussed those very issues and asked to pay serious attention if they wish to get better results for the economy of the country from this vital industry.
In his letter addressed to Finance Minister Ishaq Dar, Shafqat H Naghmi Secretary Ministry of Industries & Production, the Board of Investment (BOI) – Govt. of Pakistan and the Chairman Federal Board of Revenue, Sabir Shaikh informed that he along with other members attended the meeting for AIP (Auto Industry Policy) but their proposals were missing in the AIP draft appeared in the local newspapers, which is really disturbing for the SMEs bike assemblers.
He said that APMA believes the government should realize that the main stakeholders are motorcycle assemblers of Pakistani and Chinese domestic brands who are producing more than one million units of two wheelers annually for the last many years. The 104 approved units of two wheelers are producing Pakistani brands in collaboration with Chinese assemblers. However, it seems that the AIP is being made to facilitating only three Japanese car and bike assemblers. Does the new auto policy really care about country’s revenue, industries, job opportunities, genuine localization etc.? He raised the question.
He said; APMA understand that the EDB especially its top four officials like CEO, GM Policy, DGM Tariff and In-charge and DGM Tech and Tariff, have to change their attitude. If they changed, the working conditions will become friendly and every sector will feel level playing field including SMEs of Pakistani Motorcycle Industry.
By highlighting the Budget Proposals Mohammad Sabir Shaikh said; APMA believes all the policies and SROs made in the last 15 years were not in the interest of the country, not revenue-oriented and were basically following an anti localization policy and also against the industrialization and employment. The government should focus in the budget on two types of duties – duty on spare parts (for OEMs, commercial market, assemblies, sub assemblies, components and sub components) and secondly on completely built up units (CBU’s).
Valuation system (cars, bikes, tractors, LCVs, etc) if imported from China then valuation rules should be the same. For imports from Far East countries it should be a second valuation category. Similarly for imports from Japan and Europe there should be a third valuation category. There is a need to announce imported parts ruling on per kg basis before the Budget. This will reduce smuggling, under invoicing and mis-declaration.
APMA strongly demanded that issuance of various permissions through the EDB such as importable lists; production certificates and IORC should be done away.
All over the country the dealers of auto sector and parts should be registered in the sales tax net. Those who do not want to come in the ST net, the government should charge extra five percent GST from the dealers. APMA suggested the government should reduce the GST to 15 from 17 percent in the budget as this would help curbing sales tax evasion.
APMA was of the view that the committees formed by the finance minister under FBR in which FPCCI and some other chambers are their members is not enough as there is a need to induct more experts of their field including Motorcycle Industry of Pakistan.
The government has to give its due attention to the two wheeler segment this year especially and efforts should be made to pressurize the leading assemblers to bring a change in the decades old 70cc models. Policy hurdles, if removed, would encourage assemblers to introduce new models in the country.
Sabir said that Motorcycle parts valuation ruling (664/2014) is still on higher side. Directorate General of Customs Valuation, Pakistan issued new valuation ruling (664/2014) on March 31, 2014 on motorcycle parts under Section 25-A of Customs Act 1969. Like past practice, this Customs ruling also is loaded with confusion on same parts imported from China by the commercial importers and bike assemblers (OEMs). APMA believes that Chinese parts are of same quality either imported by the commercial importers or by the OEMs. But Suzuki and Honda are Japanese branded bikes and if their assemblers import parts from China then it means genuine import of parts. Around 104 other approved assemblers also import parts from China (almost same as being imported by the commercial importers).
APMA believes that the Valuation Department should clearly mention that the commercial importers, Chinese domestic brands and Pakistani local brands are same quality and standards. But Honda, Suzuki and upcoming Yamaha are genuine brands even their parts are imported from China.
APMA believes uncertainty also exists in the customs duty from zero percent to 65 percent coupled with valuation problems. Policy is basically strict for the 104 bike assemblers as compared to Japanese brands, APMA believes in this situation how the revenue earnings of the country can be improved?
The government departments strictly ask the assemblers during the meeting to remain confine on the issue pertaining to the relevant department which means valuation department officials are not interested in talking on duties and taxes, policy matters with the EDB and FBR issues like sales tax evasion and smuggling. Officials of other departments also show same attitude during the meetings with bike assemblers.
APMA believes valuation is purely an issue of bike assemblers who are domestically produced by the Pakistani assemblers and all of them are APMA active members. However, the Valuation department always invites KCCI, FPCCI, PAMA, PAAPAM and MSPIDA in every meeting to ascertain and fix true value of parts. The main stakeholders are 104 approved assemblers who are producing bike with their hard struggle.
The original purchase price of the importers from China is much lower than prices mentioned in the ruling of 42 items. The valuation ruling issued on March 31 is on very higher side. If the government does not lower the values of these items then the smuggling will continue to thrive.
On October 12, 2013, the story of new auto industry policy (AIP) began with the meeting of Economic Coordination Committee (ECC) and since then reports were hovering about its early announcements followed by delay in the AIP. Stakeholders held various meetings with the ministers and secretaries of different ministries for quick materialization of AIP, but it could not work. All the stakeholders also submitted their proposals hoping that the policy would be announced very soon. As per past practice, the issues usually do not resolve so instantly so it can be said here that AIP final announcement has been delayed. As the Budget 2014-2015 is round the corner, reports said that the AIP may become a part of the budgetary measures.
With reference to EDB policies Mohammad Sabir Shaikh said; APMA believes that IOR’s should be terminated and every approved assemblers should be granted powers/ permission of importing raw materials, assemblies, sub assemblies, components and sub components without EDB’s permission. The government should directly allow them through SRO or policy. Regarding developing instruments to encourage further indigenization, APMA understands that the word indigenization remains in the SRO and notifications instead of becoming a practical reality. To assess the tax and tariff environment of the auto industry including customs duties, sales tax, FED, withholding tax regime, Para-tariffs etc. APMA believes that a uniform tax structure should be introduced otherwise the government officials and the industries will misuse all the taxation system in next eight years again.
The government should abolish all the SROs on the auto sector immediately and there should be one policy document for the entire auto sector. On identification of loopholes in SROs to discourage their un-fair use, APMA believes all the SROs are suitable for big industries instead of SMEs including assemblers and vendors.
The sales tax and customs duties refund system should be improved as SROs like 656(I)/2006 is creating hurdles for exports.
On issues related to under invoicing, mis-declaration, and smuggling and used parts/vehicles import. APMA believes the Customs valuation system has to be unified for various countries. For example, all the Chinese imports of parts for OEMs and commercial markets should be on the same value. APMA elaborated that in case an OEM tries to directly import parts, the government should support the OEM instead of creating problems through importable list and production certificates. The government has to simplify the valuation ruling for OEMs as well as commercial importers.
The FBR must understand that the government has to phase out auto sector SROs in the coming budget 2014-2015. Otherwise, two to three more years would again go in waste in understanding the issue. APMA believes the government wants direct impact of taxation measures to reach the end users. However, it is only possible when the government introduces a uniform policy for both large scale and SMEs. There is a need to remove hurdles of IORC besides bringing uniformity in valuation system, removing the hurdles like production certificates and importable lists by the EDB etc. This will help the industries to introduce new models at affordable prices.
APMA believes that the concessionary tariffs should be removed in this coming budget as these SROs were introduced in 2006 for five years. This was a failed policy of former Finance Minister Shaukat Aziz who introduced Tariff Based System (TBS) instead of moving ahead with deletion programs.
EDB takes the pre-budget proposals every year but after budget announcement, the budget comes out with a different direction which means that the pre-budget meetings by the EDB, FPCCI & Chambers hold no interest for the government.
-Published on page#20-21, April-2014 edition of MOBILE WORLD Magazine