New incentives attract foreign automakers to Pakistan
ANALYSIS
The Pakistan government will support both existing foreign car assemblers and new German, French and South Korean auto assemblers. These concessions will be in addition to those provided in the Pakistan Auto Policy 2016-21 which the government had announced last year.
The incentives offered in the policy included several tariff and tax concessions. Some of these were meant to provide additional relief to three current foreign assemblers in the country, including Toyota, Suzuki and Honda.
The policy offered several more tax concessions to attract new foreign automakers as demand for new models and luxury models is constantly going up. This comes on the back of an increase in personal incomes, especially for those engaged in big business, industry and large farmers.
The government has indicated that discussions are ongoing with Renault of France, Volkswagen of Germany, Faw of China, Kia of South Korea and Chinese auto assemblers and manufacturers.
There has been a big spurt in demand for cars as a result of bank interest rates dipping to a record low of 5.75 per cent — the cheapest in the last 43 years. Auto financing by commercial banks rose 32 per cent to Rs30.7 billion in financial year 2015-16 as compared to 2014-15 and its share in consumer
domestic manufacturing of hi-tech parts is possible only if the government supports industry with the same incentives which are provided to operators in SEZs Mashood Ali Khan, chairman of Pakistan Association of Automotive Parts and Accessories Manufacturers
financing grew as well, State Bank of Pakistan, the central bank, reported last week.
Ghulam Murtaza Khan Jatoi, Minister for Industries and Production, assured the auto sector that the government would support Pakistan-based auto assemblers and auto part manufacturers to increase their exports and help them capture international markets.
Jatoi said this while inaugurating the three-day annual Pakistan Auto Show at Karachi last week. The show was arranged by 2,000-member Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam).
Paapam members are already exporting auto parts worth several billion rupees to car assemblers in Germany, France and China, besides catering to the Pakistan– based foreign car assemblers such as Toyota, Suzuki and Honda. A good deal of their parts go to foreign and Pakistani assemblers of cars, motor cycles, light commercial vehicles and tractors. The demand for these products is growing rapidly, with an increase in personal incomes and bigger demand from the farm, commercial and industrial sectors.
Jatoi added: “The show exhibits the potential of Pakistan’s auto sector which has played a major role in economic growth in recent years. This is evident from the phenomenal growth in the auto sector which has crossed the barrier of 218,0000 automobiles in 2015-16.”
The minister said: “As a result of the Pakistan auto policy announced in 2016, many international automotive companies have decided to set up assembly plants in Pakistan. The China Pakistan Economic Corridor includes projects for setting up industrial plants along its entire route, which has already attracted direct foreign investments into our country. Part of the investment is expected to be channelled into the auto sector, including heavy trucks and commercial vehicles.”
Mashood Ali Khan, chairman of Paapam, said auto manufacturing ranks among the top three tax-paying industries in Pakistan. “But the industry’s performance and growth is being threatened by some issues that can be solved if the government follows its commitment in the Policy 2016-2021.”
“Domestic manufacturing of hitech parts is possible only if the government supports industry with the same incentives which are provided to operators in special economic zones in the form of tax concessions and cheaper land price.”