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February 16, 2020

Pakistan’s New Auto Policy Encourages New Entrants

Pakistan’s government has approved a new 5-year Policy for the Automobile Industry that lowers entry barrier for new manufactures and will benefit the end-consumers to enjoy the latest technology through competition.

The new policy aims to increase production, attract investment and promote competition that will help consumers enjoy the latest technology in the automobile industry worldwide.

A Karachi-based brokerage firm, Topline Securities, has termed the new auto policy as neutral to positive for existing manufacturers as it has reduced the custom duty on Completely Knocked Down (CKD) units from 32.5% to 30%, which will improve their margins.

Import duty rates have also been reduced on localized and non-localized parts to improve indigenous competitiveness. The new policy also maintains age limit of used imported passenger cars maintained at 3 years and for Buses, Vans, Trucks, Pickups, SUVs including 4×4 vehicles at 5 years.

The Auto policy 2015-20 lowers entry barriers for new entrants and offers incentives for non-operational assembly and manufacturing facilities, closed since June 30, 2013.

The previous Auto Policy had expired in 2012 and nearly four years of delay contributed to lack of new investment in the industry. In the new policy, incentives have been offered for Greenfield investment.  Investment in this category will be entitled to import non-localized parts at 10% rate of custom duty and localized parts at 25% for a period of 4 years in case of passenger cars from 800cc and above category.  Further, 100% parts can be imported at 10% rate for below 800cc category.

Citing reports, the research firm said that different players of Europe, France and China are interested in exploring opportunities that Pakistan presents. To encourage new entrants, the government has also allowed one-off duty-free import of plant & machinery.

To encourage closed manufacturing facilities, the new auto policy offers 10% rate of custom duty for non-localized and 25% for localized parts for a period of 3 year. (GHNL) and Dewan Farooq Motors (DFML) will be the prime beneficiaries in this category.

There is no change in import policy for used vehicles: and age limit of used imported vehicles. Under the policy allows expatriate Pakistanis to bring passenger cars up to 3-year old under Personal Baggage once in 2 years per family, and once in two years under Transfer of Residence and Gif Scheme.

 

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