LAHORE: Chinese carmakers want the government to incorporate tax and other incentives to encourage investors to ‘localise’ hi-tech EV (electric vehicle) parts in the upcoming Auto Industry Development and Export Programme (AIDEP) 2021-26 expected to be announced over the next several months.

“The government should let automakers import semi-knocked down (SKD ) kits for a limited period like Bangladesh to help shift investments from low technology to new state-of-the-art automotive technology, creating space for the investors to put their money in the development of hi-tech EV parts like lithium ion batteries, motors, immobilisers, engine control unit (ECU) or battery management system, transmission and so on,” said a senior executive of MG JW, the joint venture between Pakistan’s JW-SEZ Group and China’s SAIC Motor, the owner of popular British brand Morris Garages.

The MG JW executive, who did not want to give his name, said his company was asking for additional incentives for importing SKD kits and setting up new manufacturing facilities for localising hi-tech parts only in segments like public transport vehicles, vans, pickup trucks, D-SUV, D-SD etc where the current level of localisation is either very low or non-existent. “The current investment in passenger cars would remain unaffected by this decision.”“We think it is a once-in-a-century opportunity for Pakistan to localise hi-tech parts,” he added. He argued it was right time for Pakistan to divert the new auto investments towards local manufacturing of hi-tech EV/auto parts, ditching the previous deletion policy that stressed localisation of only the low-tech parts.

MG JW is in the process of setting up its $100 million assembly plant in Lahore and plans to roll out first car in May to become eligible for the lucrative tax cuts given to the new entrants in the industry under the existing AIDP 2016-21. The majority shares – 51 per cent – in the JV are owned by the Chinese company with MG JW planning to roll out more models by 2023. Once the plant becomes operational the company plans to bring in its EV variants to the Pakistani market.

He was of the view that the import of SKD kits instead of completely-knocked down (CKD) kits will help the country adopt EV technology rapidly and localise complete automotive range, which will ultimately reduce the manufacturing costs of the vehicles and enable Pakistan to export to other countries by 2030.

Under-invoicing controversy

The company was recently caught up in a controversy when it was alleged to be involved in under-invoicing the price of its imported crossovers. It rejected the allegations, saying it’s part of its Chinese partner’s strategy to give access to Pakistani consumers to the state-of-the-art products at discounted prices to create its market here.

The government had announced significant tax incentives for electric cars in December last year and issued an ordinance in this regard. The Federal Board of Revenue (FBR), however, is yet to issue an SRO for implementing the EV incentives, which are likely to substantially benefit the Chinese automakers interested in launching their electric cars in Pakistan.

The EV policy for four-wheeler seeks to boost the demand and make local assembly of electric cars attractive and profitable. The effective rate of duty on EV CKDs has been fixed in the range of 6-8pc compared with 15-18pc for internal combustion engine (ICE) vehicles. The smaller cars with battery capacity of 50kWh or below or light commercial vehicles (LCVs) with battery capacity of 150kWh have been given an additional concession: the sales tax rate on them has been slashed to 1pc from 17pc.

Nevertheless, the bigger EV cars will continue to attract the normal sales tax rate. In addition, the importers of the completely built units (CBUs) will continue to pay 25pc import duty to keep their prices high to support assemblers and discourage EV imports. The rate of duty will be halved to 12.5pc on import of 100 vehicles in a single batch.

Published in Dawn, March 7th, 2021