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Pakistan’s automobile sector review

The Government of Pakistan is preparing a latest automobile policy that will focus on facilitating the manufacturing of low-cost cars, as the present Auto Development Policy (ADP 2016-21) is about to end in June 2021. Sources recorded that about 45 percent of a car price that a buyer pays goes to the Government of Pakistan in the form of duties and taxes. The Government of Pakistan also charges duties on imported CKDs, which are the auto parts used in assembling cars. Statistics showed that the customs duty on import of localised parts is 45 percent. The duty on non-localised parts is 30 percent. There is an additional 7 percent duty on the import of parts. The Federal Excise Duty is 2.5 percent for cars up to 1000cc, 5 percent for cars between 1000cc and 2000cc, and 7.5 percent above 2000cc. Then, there is a 17 percent sales tax. Sources record that the small (entry-level) cars have been neglected in the past. Thus, offering limited choices with high prices to the customers. The Government can influence cars price through reducing taxes and duties. By the time a buyer buys a car, almost 45 percent of the total car price he or she pays to the Government of Pakistan. It is a bit higher for bigger cars. It means the government has a significant space to tweak the car price. It is also important to note that in the development of Pakistan, the automobile sector plays major role in terms of revenue generation, foreign exchange, career opportunities, and technology transfer. This sector in the country was deregulated in the early 90s after which main foreign automakers, by joint ventures with local partners, made investments in Pakistan.

No doubt, the Government of Pakistan has great potential for excellence, and the government now aims to concentrate all of its efforts on taking each sector of Pakistan to unparalleled success. MG Motor, the new arrival of the British motor company in Pakistan, is a proof that Pakistan’s economy has moved in the right direction. It is expected that this company would play a crucial role in the development of the country.

Statistics released in the Economic Survey of Pakistan FY 2020 revealed that this sector witnessed a steep fall of -36.5 percent during Jul-March FY2020 as against to -7.56 percent decline in the same period. Major contributor to this dip is the passenger car segment because of its weight in LSM index. During the period FY2020, car production fell by -47.9 percent. While jeep production contracted by -42.7 percent, buses -28.8, trucks -45.7, LCVs -46.1, tractor -37.9 and motor cycles -11.6 percent. Pakistan’s government recently announced new incentives to encourage the use of electric vehicles (EVs) and to shift 30 percent cars to electric vehicles through 2030 as part of Pakistan’s vision to switch to renewable and clean energy. Statistics also show that to bring a Rs1.5 million car, a price range for a commonly acceptable contemporary hatchback, within the range of Rs1 million will be a difficult task to attain. To attain that, the government has to significantly reduce duties and taxes. The ADP 2016-21 policy will be ending this year in June, and now Engineering Development Board (EDP) and Ministry of Industries and Production have started to work on the new Automotive Industry Development and Export Plan (AIDEP) for the next five years. The prices of vehicles in the country are on the higher side. The government may consider a reduction in Custom Duty, removal of Additional Custom Duty (ACD) and Federal Excise Duty (FED) for the entire auto sector in upcoming AIDEP. It is also recorded that with an overall view of reducing the input costs, in return, the Government of Pakistan predicts reduction in prices through the Original Equipment Manufacturers (OEMs), raise in localisation and concerted effort to raise exports. The local vehicle manufacturing firms should strengthen their ties with local part manufacturers to improve localisation, which will lead to cost reduction, price stability, and employment generation.

Statistics also reveal that duty on localised parts is 25 percent and 10 percent on non-localised parts for new firms with Greenfield status. It is also noted that the new entrants under ADP 2016-21 will be facilitated by continuity of the policy to ensure the confidence of the investors. They should however prepare to merge with the mainstream at the end of their five-year period.

Cars sales

In Pakistan, statistics show that the car sales grew 18 percent to 78,910 units during the first six months of the current fiscal year. Industry data showed consumer demand is coming back to normal aided by low interest rates. Suzuki, Indus Motors, Honda and Hyundai sales’ were recorded at 67,019 units in the corresponding period last year. Demand is expected to continue increasing in 2021. It is also recorded that passenger car sales grew 12.6 percent to 11,247 units in December from 9,987 units sold during the corresponding period in 2019. However, sales remained lower against 11,914 units sold in November 2020. Jeeps, buses, tractors, three-wheelers and motorcycles have also shown an increase in sales. In December, 1300cc and above car sales showed a rise by 49 percent to 4,838 units as against with 3,246 units sold during the same month in the last year. Under 800cc cars, sales dropped 23 percent. Buses and trucks saw a slight rise in sales to 342 units in December from 315 units during the same period in corresponding year.

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