Khusro Bakhtiar, the federal Minister of Industries and Production, recently revealed all the additional features of the new auto policy 2021-26 in a press event. The new policy has been celebrated by manufacturers and consumers alike with the forthcoming reduction in prices following the reduced FED taxes. The policy also revealed multiple benefits and perks for small and electric vehicles which witnessed the highest decrease in prices. Furthermore, it was announced that all changes in price would be implemented by the 10th of July 2021.
Reduction in Car Prices:
With ACD and FED now reduced on all cars, price reductions are expected in each category being manufactured locally. The prices of cars are expected to be reduced:
- Federal Excise Duty (FED) slashed from 2.5% to 0% for cars up to 1000cc
- Decreases of Rs. 104,000 – Rs. 142,000 in the prices of cars below 850 cc
- FED for vehicles from 1001cc to 2000cc is cut to 2.5% from 5%
- Decreases of Rs. 112,000 – Rs. 186,000 in the prices of cars from 1001-1500 cc
- Decreases of more than Rs 167,000 in prices of cars in 1800cc category
- FED for cars between 2001cc and 3500cc is decreased to 5% from 7.5%
- Decreases of more than Rs 229,000 in the prices of cars in 2000cc and above category
- Customs Duty on import of CKD non-localized kits up to 850cc has been reduced to 15% from 30% and for localized the duty is decreased to 30% from 46% for new models till June 30th, 2024 or from the date of issuance of a manufacturing certificate
- 7% Additional Customs Duty (ACD) on CKD kits for cars up to 850cc abolished for 2 years
- 7% ACD and 15% Regulatory Duty (RD) on CBU cars up to 850cc has also been exempted for 2 years.
The new policy has followed last year’s tax exemptions for 4-wheelers Electric Vehicles, and has heavily incentivized their growth with the following incentives provided:
- 10% CD on import of CBUs of EVs
- Removal of Additional Customs Duty, FED and AST on imports of EV cars
- Only 1% tax on import of EV parts for local manufacturers
- No Registration and annual renewal fee for EVs in Islamabad
- 1% sales tax for local made EVs (50kwh-150 kwh)
- Only 1% Duty on import of charging equipment
- Duty free import of plant and machinery for manufacturing of EVs
The new policy has also endeavoured to boost localisation of production and adopted further policies to boost initiatives like the ‘Meri Gari Scheme’ and to mitigate ‘own money’ as well as increase the safety standards of cars in Pakistan in general. The details are as below:
- Rs. 50,000-200,000 tax whereby the first registration is not in the name of the person who booked the vehicle. This step was primarily introduced to break the monopoly of investors pre-booking cars to reduce supply and later indulging in charging premiums over the invoice price.
- Compulsory payment of KIBOR+3% by manufacturers on deliveries exceeding 60 days.
- Maximum upfront payment on booking can not exceed 20% of the invoice value at the time of booking.
- 17 shortlisted safety regulations will be implemented in a phased manner over a period of three years.
- The condition of 30% value addition has been introduced on imported raw materials and components to be used for the manufacturing of vehicles in the country.
- The government has introduced measures to increase the production of vehicles to approximately 300,000 in the current fiscal year and up to 500,000 by 2025.
- Exports targets for the manufacturers will be up to 10% of the import value by the end of this policy (2026).
Following the visible success of the previous policy (2016-2021), Pakistan saw enhanced competition in its automotive players, the intended outcome of the new auto policy (2021-2026) similarly is cantered over enhancing competition and incentivizing affordability. Despite the exact details of several additional incentives yet to be finalised by the government, the new auto policy was welcomed and well-received by all.