Pakistan introduced its first-ever Auto Policy back in 2016. With the incentives given in this policy, many international auto producers got “Greenfield status” and set up their production facilities in Pakistan. Greenfield is a status granted to car manufacturing companies that include tax and duty incentives to support new car companies in entering the Pakistani marketplace. One example of that is MG Motors.MG Motors is one of the car companies that came to Pakistan after the government declared it’s Auto Development Policy 2016-21
By giving them Greenfield status several world-class auto producer companies attracted to the local market like Hyundai-Nishat, United Motors, Kia Motors, and DFSK are some of the names.
The New AIDEP 2021-26
This Auto Development Policy (ADP) of Pakistan (2016-2021) will expire in June 2021. The new Auto policy is now given the name of Automotive Industry Development and Export Plan (AIDEP) 2021-26. The main features of the new (AIDEP) 2021-26 are as follows:
Trimming down Taxes and duties
The New AIDEP 2021-26 focal point will be on assisting the manufacturing of reasonable car prices, which will lead to cost reduction, price stability, and employment creation in the country. AIDEP 2021-26 is also expected to considerably trim down customs duty, extra customs duty, and federal excise duty for the whole auto sector. The government will bargain with car manufacturers for a decrease in car prices, an increase in localization, and intensive efforts to increase exports. It is estimated that 45% of the price paid by the consumers of a vehicle goes into governmental duties and taxes. According to the new tariffs policy offer a 50% tax exclusion to cars under 1,800cc and a 25% exception above 1,800cc.
The list of Existing Taxes on Cars
There is a list of taxes and duties on cars today
- Customs duty on import of localized parts is 45%
- Customs duty of 30% on non-localized parts
- Additional customs duty 7% on import of all parts.
- Federal excise up to 7.5% duty on different engine capacities
- Sales tax17% on the sale of a car
Cost reduction of autos
According to reports in the new AIDEP((2021-2026), the Ministry of Industry and Production Pakistan (MoIP) might introduce a considerable decrease in the prices of small cars. The plan is to make it achievable for every middle class Pakistani to buy a car. The government is taking into consideration to set a maximum limit of Rs. 10 lacs for all small cars in the country. By doing MoIP wants to give a margin of 5 to 6 lacs to the middle-class buyer.
Imported cars policy
The other objective of this new AIDEP is to remove the supremacy of local auto manufacturers. Today, we have 30-40% taxes and duties on imported vehicles and cars. So, the government plans to cut back the taxes and duties for imported cars and decrease taxes for imported vehicles and cars.
The emergence of new Investors
The Federal Minister Hammad Azhar briefed that 20 new financiers and companies had been established as Greenfield status by the government and that six new companies had entitled to enter the four-wheeler sector of Pakistan’s auto industry. Moreover, four new companies had agreed to invest in Pakistan’s Bus Market. This financial activity led to $476 million in direct investment on the ground in Pakistan.
The six new corporations in the automobile segment include Kia lucky Motors Pvt Ltd, United Motors Pvt Ltd, Regal Automobile Industries Ltd, Foton JW Auto Park Pvt Ltd, Master Motors Ltd, and Hyundai Nishat Motor Pvt Ltd would become fully operational.
Installed Capacity of Pakistan
The New AIDEP (2021 to 2026) would strengthen the automotive division as it would raise the overall installed capacity of local industries to up to 418,000 per annum by June 2021, which was around 280,000 in June 2020. The new horizons are also opened by giving incentives to the companies to start the generation of electric vehicles in Pakistan. This vehicle improve also the climate condition of our country.
Policy about Electric cars
In addition to that, the government has decided to integrate a policy for electric vehicles in the next ADP 2021-2026. The fresh policy would cover up hybrid vehicles as well as electric vehicles including those produced locally. The Electric Vehicle policy is almost finalized with an intention to remove additional customs duty, sales tax, and federal excise duty on Electric Vehicles, just once the new auto policy comes into effect from July 2021. According to a suggestion given by the auto committee to the government should build up charging stations to progress the viability and emergence of Electric vehicles in the Pakistani market and they should reuse batteries, by following the footsteps of Tesla in the United States. The Government intends to encourage to start production of electric cars within the countries, so the electric cars would also be available to Pakistani consumers. The Government wants to introduce environmentally friendly vehicles at an affordable price. It also encourages companies to build logistic support to the electric vehicle by building Electric power station as Tesla has done in America.
Two-wheel and three-wheel policy
The two-wheeler and three-wheelers policy is also approved and is also being incorporated in the new AIDEP(2021-2026) auto policy. The main features of this policy are also disclosed soon.
Policy for heavy vehicles in AIDEP(2021 to 2026)
The Government also approved policy for heavy vehicles and four companies are entitled to invest in the bus sector of Pakistan. So new bread of buses is also going to run on Pakistani roads. This will give the transportation services a boost and intercity transportation and transportation between different cities will be improved. More competition between companies would ultimately reduce the fare and the Pakistani public would be benefited from it.
The implementation of this new AIDEP(2021-2026) will be from the first of July 2021, the MoIP is going to finalize this draft up to March. We have to wait until how much is going to be true in reality.