All You Need to Know About Auto Policy 2021-26

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The Automotive Development Policy (ADP) 2016-21 has expired, giving way to the new developments and incentives under the Automotive Industry Development and Export Policy (AIDEP) 2021-26.

Earlier this year, the government announced a series of tax exemptions for carmakers in Pakistan in the interest of strengthening and ensuring the growth of the industry. The AIDEP 2021-26 focuses on enabling the local car industry to shift to complete local manufacturing for added viability and sustainability.

The Ministry of Industries and Production (MoIP) presented the policy before the federal cabinet earlier today, which approved the propositions made in the AIDEP 2021-26 which will ensure further development of the Pakistani car industry. As per an official document available with ProPakistani, here are the salient features of the policy:

  • Minimizing the negative impact of car industry imports on the current account balance.
  • Localization.
  • Export targeting.
  • Consumer protection.
  • Promotion of new technologies.

No Short Term Effects on Current Account Balance

Following the lapse of the previous auto policy, no new entrants were given the benefits after June 30, 2021, except for a select few who were provided relief to launch the following products:

  • Small cars up to 1000cc.
  • New model tractors.
  • Motorcycles with engine capacity over 125cc (for the export market only).

As per the analysis from the Ministry of Industries and Production, the new products are not likely to observe an increase in imports in the next year due to time lag in investment. This implies that there will not be any short-term ramifications of the policy on the current account balance.

Localization Plan

The AIDEP 2021-26 lays a particular emphasis on the localization of auto-parts and plans to expand on it in the near future. According to the document, the current rate of localization is as follows:

SectorLocalization Level AchievedTop 10 Localized Parts [SRO 693(I)/2006]
Number of PartsValue of Parts
Motorcycles95%85%Crank Case, Crank Shaft, Piston & Ring, Magneto, Suspension, Transmission, Engine Head, Engine Block, Wiring Harness, Body Parts. etc.
Tractors92%80%Transmission, Crankshaft, Piston, Connecting rod, Engine Valves, Engine Block, Starter Motor, Body parts. etc.
Cars55%45%Suspension, Steering Knuckle, Brakes, Light Springs Leaf, Radiator, Steering mechanism, Windscreen, Body parts, etc.
Truck & Buses15%12%Exhaust/Inlet Manifold, Front Cabin, Wiring Sets, Radiator, Heavy Spring Leaf, Silencer, Cross Members, Floor Assembly, Body parts. etc.

It was also highlighted that Pakistan will be able to save a massive amount of foreign exchange in Completely Knocked-Down (CKD) production:

 Serial No.DescriptionValue in USD
1Cost of Completely Built unit  (1500 cc )22,000
2Cost of Imported CKD8,000
3Cost of local parts = USD 9000 Less 30 % value addition/local content = USD 6000 approx6,000
4Difference between CBU & CKD =22000-14000 (CBU import 36 % higher than CKD manufacturing )8,000
5Average cost of CBU=14000 x 300,000 (if total requirement is imported)4.2 billion
6FE saving if manufactured locally = 36% of 4.2 billion1.5 billion

Make in Pakistan Initiative

Keeping with the interest of indigenizing the production of vehicles, the AIDEP 2021-26 also entails the “Make in Pakistan Initiative” that entails the following:

  • Components or sub-assemblies shall not be eligible for concessions in case the local value addition is less than 30%.
  • Manufacturing of parts to be localized through a bi-annual update of lists (SRO-693), resulting in enhanced tariffs, if imported.
  • The first update of the AMAX list will include 22 further parts (first update after 2006).
  • Next six months’ target set for manufacturers for localization of parts.
  • The policy aims to localize 100% of motorcycle parts and 75% of car parts by 2026.

Consumer Protection

A point of contention among the Pakistani car buyers, consumer protection has been a long-debated issue among the car buyers. The AIDEP 2021-26 seeks to address the said concern by adding the following clauses:

Own Money Issue

The government will impose heavy penalties on carmakers who delay deliveries for more than 60 days. The fines shall amount to 3 percent of the vehicle’s price plus KIBOR. The clause has been added to bridge the demand and supply gap and eliminate ‘own money’ issue.

The government will impose an extra tax of Rs. 50,000 to Rs. 200,000 at the time of registration, if the motor vehicle is sold prior to registration by the original purchaser.

Auto Sector Monitoring Committee (ASMC)

The government will ensure the formulation of a committee under the chairmanship of the MoIP secretary. The committee will incorporate representatives from the Engineering Development Board (EDB), Ministry of Commerce, Federal Board of Revenue (FBR), Competition Commission of Pakistan (CCP), Ministry of Science and Technology (MoST), State Bank of Pakistan (SBP), Pakistan Automotive Manufacturers Association (PAMA), and Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM).

The committee will be responsible for the following:

  • Addressing consumer grievances including ‘Own Money’ and delayed deliveries.
  • Safeguarding customers on quality issues.
  • Implementation of WP-29 safety regulations.
  • Minimum initial payment not to exceed 20% of the price.
  • In case of non-compliance with policy interventions, the committee will have the right to stop the incentives.

Export Targets

The government has set a timeline whereby the export targets shall be ensured. These export targets are indicative and shall be reviewed and enhanced periodically as per the following timeline:

Financial YearObligatory export as % of import value
2021-220%
2022-232%
2023-244%
2024-257%
2025-2610%

Electric and Hybrid Vehicles

The automotive industry is moving ahead at a fast pace in terms of technological advancement. With that under consideration, the government has decided to incorporate a clause regarding updates of powertrain technology, which includes:

Incentive For EVs
  • Parts specific for EVs to be imported at 1% Customs Duty.
  • No Sales tax on EV-specific parts at import stage.
  • 1% Sales Tax on sale of locally manufactured EVs.
  • Zero taxes and duties for capital machinery imports and charging infrastructure.
  • Electric buses and trucks can be imported at 1% Customs Duty.
Incentives for Hybrids
  • Parts specific for plug-in hybrids to be imported at 3% Custom Duty
  • Parts specific to normal hybrids to attract 4 % Custom Duty

Other Policy Approvals

Approvals Already Given in Finance Act 2021
  • New product policy for up to 850cc cars (incentivized tariffs).
  • New Product Policy for motorcycles & tractors (incentivized tariffs).
  • Promotion/continuity of EV Policy.
  • Promotion of new technologies for e.g. hybrids.
  • Adoption of safety regulations.
  • Ensuring local value addition & bi-annual updates of localized parts.
  • Consumer Protection (Kibor+3% on delivery beyond 60 days).
Approvals Required from Cabinet
  • Notification/SRO to allow the import of CBUs 10 per variant maximum 100 units for cars 200 units for 2-3 Wheelers at 50% of levied Customs Duty (CD) for manufacturers for marketing and showcase purposes.
  • Notification/SRO for duty-free import of plant and machinery for setting up plants for EV manufacturing.
Approvals Required: Money Bill

Amendment through Money Bill requested for:

  • Incentives for local manufacturing of small and fuel-efficient vehicles (car/van/LCV) at affordable prices.
  • Applicable to all present and upcoming vehicles up to 850cc.
  • Enhancement of cut-off date & timelines for New Product Policy for Cars motorcycles & tractors
    • New Product Policy CD (15-30%), two (three) years from manufacturing certificate or 30 June 2024 (2026), whichever is earlier – cut-off date of approval: 30th June 2022 (2023).
  • Sales Tax concession to be extended to pickup trucks and LCVs of up to 1000cc.
  • Extension of 5% CD for HCVs in current finance bill to new entrants also (Procedural issue/SRO/ to be added in relevant table).

Shortlisted UNECE’s Safety Regulations for Adoption

DescriptionUN Regulations (UNRs)Vehicle Category
Active  SafetyBrakesR 13 & R 13HPassenger Cars and Vans + Commercial Vehicles &  Buses
SteeringR 79Passenger Cars and Vans + Commercial Vehicles & Buses
TiresR 30Passenger Cars and Vans
LightingR 48Passenger Cars and Vans + Commercial Vehicles & Buses
Passive SafetySafety Belts  Anchorages& BeltsR 14 & R16Passenger Cars and Vans + Commercial Vehicles & Buses
Seats / Head RestraintsR 17 & R 25Passenger Cars and Vans
CollisionR 94, R 95 & R 135Passenger Cars and Vans
AirbagsR 121, R114Passenger Cars and Vans
General SafetySafety GlazingR 43Passenger Cars and Vans
Mirrors & CamerasR 46Passenger Cars and Vans + Commercial Vehicles & Buses
Anti-theftR 18Passenger Cars and Vans + Commercial Vehicles & Buses

Verdict

The AIDEP 2021-26 has several clauses for further bolstering the Pakistani automotive industry’s development. There’s a heavy emphasis on localization of vehicles, parts, protection of consumers, and incorporation of technology and safety. It is yet to be seen, however, as to how well the policy is enacted and implemented in coming days.

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