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Auto Policy 2021-26- Everything You Must Know
Asadullah
22 Dec 2021
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Auto Policy 2021-26- Everything You Must Know
Finally, we are preparing to get the incentives and new developments on the implementation of New Automotive Industry Development and Export Policy AIDP 2021-21 after expiration of the Automotive Development Policy ADP 2016-21.
The government has already announced the AIDP 2021-2026 with a number of tax exemptions for manufacturers of cars in the country to ensure the growth of industry locally. The new Auto Policy 2021-26 emphasizes on the complete local manufacturing of vehicles.
The Federal cabinet has approved the propositions recommended in the AIDP 2021-26 when the Federal Ministry of Industries and Production MoIP presented the new policy before cabinet. The approval by the cabinet ensures the further development of local auto industry.
According to an official document, the key features of AIDP-2021-26 are given below:
Key Features of AIDP-2021-26
Reducing the negative impact of imports on the current balance in the car industry
Local assembling and manufacturing of cars converting the industry to complete localization
Protection of consumer
Achieving export targets
Development and promotion of new technologies in the local automotive sector
Short Term Effects On Current Account Reduced
After expiration of previous auto policy, the new entered car makers were not given benefits after 30th June 2021 except only those who launch the following products were given relief.
Small cars up to 1000cc.
New model tractors.
Motorcycles with engine capacity over 125cc for the export market only.
As the Ministry of Industries and Production analyzed that there would be no significant increase in the imports next on new products due to time lag in investment. So, there will not be any short time affect on the current account.
Localization Plan
The new Auto Policy 2021-26 specifically focuses on the local manufacturing of auto parts. As per official document, the current localization rate is as under:
According to document also reads that Pakistan will earn a huge amount of foreign exchange in Completely Build Knocked-Down CKD production.
| Sector | Localization Level Achieved | Top 10 Localized Parts [SRO 693I/2006] | |
| Number of Parts | Value of Parts | ||
| Motorcycles | 95% | 85% | Crank Case, Crank Shaft, Piston & Ring, Magneto, Suspension, Transmission, Engine Head, Engine Block, Wiring Harness, Body Parts. etc. |
| Tractors | 92% | 80% | Transmission, Crankshaft, Piston, Connecting rod, Engine Valves, Engine Block, Starter Motor, Body parts. etc. |
| Cars | 55% | 45% | Suspension, Steering Knuckle, Brakes, Light Springs Leaf, Radiator, Steering mechanism, Windscreen, Body parts, etc. |
| Truck & Buses | 15% | 12% | Exhaust/Inlet Manifold, Front Cabin, Wiring Sets, Radiator, Heavy Spring Leaf, Silencer, Cross Members, Floor Assembly, Body parts. etc. |
| Serial No. | Description | Value in USD |
| 1 | Cost of Completely Built unit 1500 cc | 22,000 |
| 2 | Cost of Imported CKD | 8,000 |
| 3 | Cost of local parts = USD 9000 Less 30 % value addition/local content = USD 6000 approx | 6,000 |
| 4 | Difference between CBU & CKD =22000-14000 CBU import 36 % higher than CKD manufacturing | 8,000 |
| 5 | Average cost of CBU=14000 x 300,000 if total requirement is imported | 4.2 billion |
| 6 | FE saving if manufactured locally = 36% of 4.2 billion | 1.5 billion |
Make In Pakistan Initiative
The new Automotive Industry Development and Export Policy AIDP 2021-21 also focus in “Make in Pakistan Initiative” which includes the following provisions:
Components o r sub-assemblies shall not be eligible for concessions in case the local value addition is less than 30%.
Manufacturing of parts to be localized through a bi-annual update of lists SRO-693, resulting in enhanced tariffs, if imported.
The first update of the AMAX list will include 22 further parts first update after 2006.
Next six months’ target set for manufacturers for localization of parts.
The policy aims to localize 100% of motorcycle parts and 75% of car parts by 2026.
Consumer Protection
Consumer protection is a major and long mostly discussed issue among the Pakistani car buyers. The consumer protection issue in the AIDP 2021-26 is also addressed.
The clauses regarding consumer protection in the AIDP are given below:
On Money Issue
According to new policy, the carmakers will be charged huge penalties on more than 60 days late deliveries. The penalty will be 3% of total price of car plus KIBOR. This step is taken to eliminate the own money issue.
In case, the motor vehicle is sold prior to registration by the original purchaser, the extra tax of Rs. 50,000 to Rs. 200,000 at the time of registration will be imposed by government.
Auto Sector Monitoring Committee ASMC
An Auto Sector Monitoring Committee ASMC will be formed under chairmanship of MoIP secretary comprising of members from the Engineering Development Board EDB, Ministry of Commerce, Federal Board of Revenue FBR, Competition Commission of Pakistan CCP, Ministry of Science and Technology MoST, State Bank of Pakistan SBP, Pakistan Automotive Manufacturers Association PAMA, and Pakistan Association of Automotive Parts & Accessories Manufacturers PAAPAM.
The key responsibilities of the ASMC will be:
• Addressing consumer grievances including ‘Own Money’ and delayed deliveries.
• Safeguarding customers on quality issues.
• Implementation of WP-29 safety regulations.
• Minimum initial payment not to exceed 20% of the price.
• In case of non-compliance with policy interventions, the committee will have the right to stop the incentives.
Export Targets
The export targets have been set by government with a specific tenure where they must be achieved. The targets set for the indications and shall be improved and reviewed with the passage of time if needed. These targets will follow the timeline given below:
| Financial Year | Obligatory export as % of import value |
| 2021-22 | 0% |
| 2022-23 | 2% |
| 2023-24 | 4% |
| 2024-25 | 7% |
| 2025-26 | 10% |
Electric and Hybrid Vehicles
The technological innovations and advancement in the automotive sector is at its peak. For this purpose, the government has taken a decision to introduce a provision for powertrain technology update in vehicles. It comprises of:
Incentives For EVs
• Parts specific for EVs to be imported at 1% Customs Duty.
• No Sales tax on EV-specific parts at import stage.
• 1% Sales Tax on sale of locally manufactured EVs.
• Zero taxes and duties for capital machinery imports and charging infrastructure.
• Electric buses and trucks can be imported at 1% Customs Duty.
Incentives for Hybrids
• Parts specific for plug-in hybrids to be imported at 3% Custom Duty
• Parts specific to normal hybrids to attract 4 % Custom Duty
Other Policy Approvals
Approvals Already Given in Finance Act 2021
• New product policy for up to 850cc cars incentivized tariffs.
• New Product Policy for motorcycles & tractors incentivized tariffs.
• Promotion/continuity of EV Policy.
• Promotion of new technologies for e.g. hybrids.
• Adoption of safety regulations.
• Ensuring local value addition & bi-annual updates of localized parts.
• Consumer Protection Kibor+3% on delivery beyond 60 days.
Approvals Required from Cabinet
• Notification/SRO to allow the import of CBUs 10 per variant maximum 100 units for cars 200 units for 2-3 Wheelers at 50% of levied Customs Duty CD for manufacturers for marketing and showcase purposes.
• Notification/SRO for duty-free import of plant and machinery for setting up plants for EV manufacturing.
Approvals Required: Money Bill
Amendment through Money Bill requested for:
• Incentives for local manufacturing of small and fuel-efficient vehicles car/van/LCV at affordable prices.
• Applicable to all present and upcoming vehicles up to 850cc.
• Enhancement of cut-off date & timelines for New Product Policy for Cars motorcycles & tractors
• New Product Policy CD 15-30%, two three years from manufacturing certificate o r 30 June 2024 2026, whichever is earlier – cut-off date of approval: 30th June 2022 2023.
• Sales Tax concession to be extended to pickup trucks and LCVs of up to 1000cc.
• Extension of 5% CD for HCVs in current finance bill to new entrants also Procedural issue/SRO/ to be added in relevant table.
Shortlisted UNECE’s Safety Regulations for Adoption
| Description | UN Regulations UNRs | Vehicle Category | |
| Active Safety | Brakes | R 13 & R 13H | Passenger Cars and Vans + Commercial Vehicles & Buses |
| Steering | R 79 | Passenger Cars and Vans + Commercial Vehicles & Buses | |
| Tires | R 30 | Passenger Cars and Vans | |
| Lighting | R 48 | Passenger Cars and Vans + Commercial Vehicles & Buses | |
| Passive Safety | Safety Belts Anchorages& Belts | R 14 & R16 | Passenger Cars and Vans + Commercial Vehicles & Buses |
| Seats / Head Restraints | R 17 & R 25 | Passenger Cars and Vans | |
| Collision | R 94, R 95 & R 135 | Passenger Cars and Vans | |
| Airbags | R 121, R114 | Passenger Cars and Vans | |
| General Safety | Safety Glazing | R 43 | Passenger Cars and Vans |
| Mirrors & Cameras | R 46 | Passenger Cars and Vans + Commercial Vehicles & Buses | |
| Anti-theft | R 18 | Passenger Cars and Vans + Commercial Vehicles & Buses |
Conclusion
The new Automotive Industry Development and Export Policy AIDP 2021-21 various provision which will definitely play a key role in the advancement and development of Pakistan Automotive sector. The AIDP 2021-26 puts a strong emphasize on the Local assembling and manufacturing of auto parts, consumer protection, use of innovative and advanced technology and safety as well. Let’s see how government and authorities achieve a success for the implementation of policy in future.
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