The government has come up with a new auto policy with a package of incentives for the European auto manufacturers to invest in the automobile sector in the country. The Economic Coordination Committee of the Cabinet has approved a five-year Automotive Development Policy after two and a half years of deliberations to ensure availability of vehicles at competitive rates. The policy offers lower tax rates to the new entrants as well as to protect the interests of the business concerns already in the trade. The exiting brand makers have not improved shape and structure of their vehicles and have been running the same old models for the last two decades despite enjoying the government incentives. With emerging middle class in the country and improvement in the economic conditions, the demand for new cars has increased many fold during the last five years, but the existing players such as Honda, Toyota and Suzuki failed to roll out new models and reduce prices.
The government is now expected to invite European brands such as Fiat, Volkswagen and Renault as to set up their plants in the country. The package of incentives include only 10 percent duty on the import of plants which are not produced locally and 25 percent duty on localized plants for five years. The government will introduce brownfield category under which a three-year incentive package will be offered to the new entrants for the revival of the closed plants such as Ghandhara-Nissan and others. The duties and taxes will be rationalized for the existing carmakers which will hopefully stimulate economic activities in the country. The new policy envisages reduction in the duty of cars up to 1,800cc engine capacity for the next two years while the import tariffs on 800-1,200cc cars will also be brought down. However, the government policy on the import of used car will remain unchanged.
Pakistan is an emerging economy and it needs flexible economic policies. Most of the foreign investors are shy of risking their money in a country where trade policies and tax laws are subjected to a frequent change. A democratic government is in place and parliament is intact. There is no impediment in the way of the government to pass tax laws which could remain unchanged at least for five years. The imposition of taxes and duties is the prerogative of parliament, but this vital area of government powers has been placed in the hands of grade 18 officials. This only brings failures than any success in the long run. It is hoped that the new auto policy will attract local and foreign investment, ensure transfer of technology, enhance competition and push up industrial growth in the country.
