PRIME Minister Shehbaz Sharif has reportedly approved, in principle, a five- year auto policy, proposing to bring down the average tariff to 15 percent and reduce the GST rate for various variants of electric and hybrid vehicles. The 2026-31 policy envisages mandatory export targets for the auto manufacturers and a framework for ensuring the domestic value addition. The new policy aims at promoting new energy vehicles (NEVs) as they will be subjected to reduced rates of sales tax as compared to those on ICE (Internal Combustion Engine) vehicles.
Fuller details are not available but even the known aspects cannot be treated as final because of the requirement to seek approval of the policy from the International Monetary Fund (IMF), which speaks volumes about increased interference in policy issues in every imaginable sector by the Fund. This is the price that we are paying for our continued engagement with the global lender and regrettably there are no indications yet that the existing programme with the IMF will be the last one. Anyhow, the most critical aspect of our auto policies has been the indigenization of vehicle manufacturing, which has historically fallen short of its goals, keeping the automotive sector heavily dependent on imported Completely Knocked Down (CKD) kits and vulnerable to macroeconomic shocks. It is unfortunate that despite decades of government protectionist policies, the local manufacturing of critical, high-tech components has failed to yield positive results. The manufacturers enjoyed numerous incentives, pocketed profit margins, unduly raised prices of vehicles and invested nominally in improving the quality of vehicles. We hope the new policy will specify goals and put in place necessary mechanisms to ensure their realization before the deadline. Pakistan has a flourishing market for new vehicles but manufacturers did not invest on localization on the plea that the local market was relatively small despite the fact that many other countries went for mass production for exports. With this in view, the proposed policy envisages an export target of $6 billion in its five year period. There are also complaints that the domestic automotive sector has underinvested in Research & Development (R&D) and engineering facilities, such as local testing and certification labs and this aspect should also be taken care of.