ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet on Friday approved Automotive Development Policy 2016-21 that offers incentives to new manufacturers through lower tax rates to bring vehicle prices down through competition with existing players.

The meeting, presided over by Finance Minister Ishaq Dar, also increased sovereign guarantees to Pakistan International Airlines (PIA) by Rs5 billion, imposed regulatory duties on steel and iron products and extended deadlines for regasified liquefied natural gas (RLNG)-based large power projects in Punjab.

Board of Investment (BoI) Chairman Miftah Ismail told Dawn after the meeting that basic policy objective was to bring in new brands and revive some closed units to generate healthy competition in the market, leading to reduction in prices and improvement in quality standards.

He said the existing players were running with 20-year-old models despite government encouragement to roll out new models and reduce prices. “The existing three have not been able to bring in enough competition. As a result, car prices in Pakistan are much higher than they should be.”

The policy defined new entrants as carmakers whose models are not produced in Pakistan at present and would set up greenfield projects, he said. This would mean that Honda, Toyota and Suzuki would not be offered incentive facility which the government would provide to new players like Fiat, Volkswagen, Renault and Nissan.

Mr Ismail said new entrants would be allowed import of plants not produced locally at 10 per cent duty and 25pc duty on localised plants for five years. These rates would remain unchanged for five years.

Simultaneously, a brownfield category has been created for plants like Ghandhara-Nissan and some others which are currently lying closed for various reasons. The incentive package for new entrants would be available to this category for three years to facilitate their revival as economic activity picks up pace.

For existing carmakers, the duties would also be rationalised. In doing so, the import tariff would be reduced from 32pc to 30pc for non-localised plants and from 50pc to 45pc for localised plants.

The policy also promised reduction in duties by 10pc for all cars up to 1,800cc engine capacity over the next two fiscal years i.e. 2017-18 and 2018-19. This would mean the import tariffs on 800-1,200cc cars would be brought down from 55pc to 45pc and so on. However, there would be no change in these rates in the coming budget.

The import regime for used cars was kept unchanged because this fell in the jurisdiction of parliament, the BoI chairman said. The import tariff on completely knocked down (CKD) units would also be reduced to 30pc from existing rate of 32.5pc for non-localised parts and from 50pc to 45pc on localised parts, he added.

Also, the new policy set a uniform 10pc rate of duties on components and sub-components by merging the two in one category because 5pc duty on components and 10pc on sub-components led to mis-declaration in the past.

He said the new policy would facilitate higher volumes, better investment, enhanced competition and better quality with latest technology. It creates a balance between industrial growth and tariffs to ensure sustainability for all stakeholders and encourage consumer welfare.

The meeting also allowed 45 million cubic feet (mmcfd) raw gas from Oil and Gas Development Company Limited (OGDCL)’s Qadirpur Gas Field to Liberty Power Limited up to year 2025-26, enabling the plant to continue to provide 211 megawatts net power to the national grid.

The ECC meeting also increased the limit of the government’s guarantees for PIA from Rs146bn to Rs151bn to help the national carrier pay its liabilities.

The committee also approved extension in the date for export of wheat/wheat flour (aata) till June 15, 2016.

The meeting also imposed 15pc additional regulatory duty on import of finished iron and steel products till June 30, 2016 on the recommendations of the Federal Board of Revenue, and levy of regulatory duty at 10pc on aluminium alloy.

The meeting also approved extension in the date for reduced withholding tax at 0.4pc for non-filers under section 236(p) of the Income Tax Ordinance, 2001 up to March 31.

The ECC also gave ex-post facto approval extension in bid submission date for 1,000MW RLNG-based independent power producers (IPPs) initiative till April 5 from March 21 already advertised by the Private Power and Infrastructure Board.

Published in Dawn, March 19th, 2016