Automobile assemblers and spare part manufacturers alike have requested the federal government to provide clear policy guidelines regarding the reduction of import duties. According to reports, assemblers want the government to disclose this information to them prior to the announcement of the federal budget for Fiscal Year (FY) 2025-26.

 

Stakeholders in the domestic automotive sector met with Special Assistant to the Prime Minister, Haroon Akhtar Khan, to seek the government’s stance on upcoming policy changes. As per reports, the aforementioned stakeholders included representatives from the Pakistan Automotive Manufacturers Association (PAMA) and the Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM).

 

While a reduction in duties could help increase competition in the domestic market, authorities linked to the Ministry of Industries and Production and the Engineering Development Board (EDB) outlined how it could lead to a shift of focus away from domestic manufacturing in favour of imported cars.

 

Higher automotive imports could also result in a significant leakage of foreign reserves. The mechanism behind this is the State Bank of Pakistan’s managed float regime, which requires foreign exchange interventions to ensure the rupee does not depreciate significantly.

 

Domestic consumers would stand to benefit from such policies; however, the increase in competition could lead to a drop in car prices. Moreover, easing imports could also increase the array of choices available to those looking to purchase a vehicle.

 

The federal government intends to implement the National Tariff Policy (NTP) for 2025-30 from July 1. Reports indicate that the meeting between manufacturers and state officials falls under the umbrella of the NTP. 

 

The NTP aims to reduce regulatory duties while also abolishing additional customs duties in phases. This policy measure intends to simplify customs processes while also cutting down barriers to free trade.

 

Reports suggest that domestic automotive manufacturers seek duties on imported vehicles as the high cost of raw materials and electricity make it virtually impossible to compete, on price, with players such as China, Indonesia, India, Thailand and Vietnam.  

 

As per Paapam, operating domestic manufacturing units was not viable given the aforementioned challenges. Reports reveal that by 2030, import duties on industrial and auto machinery are expected to fall to around 15 percent, which has raised concerns in the auto sector. 

 

CBUs (completely built imported vehicles) currently face high taxes ranging from 50 percent to 100 percent. Similarly, local auto part manufacturers are protected by an 18 percent duty on imported CKD (completely knocked down) kits. 

 

During the meeting, Paapam reportedly cautioned the government, outlining how if CBUs are imported at just 15 percent duty, auto parts may also be imported at extremely low rates of around zero to 10 percent. This could detrimentally impact local manufacturers who rely on protective tariffs to stay competitive.