The ADP 2016-21 had been approved by the PML (N) government, following which at least 10 companies were granted Greenfield and Brownfield status. These companies have spent billions of rupees on establishment of assembling plants. However, the companies are still facing a number of issues similar to existing companies.
One of the new entrants, Kia Lucky Motors Limited (KLM), has drawn the attention of the Chairman Board of Investment towards a fiscal measure proposed to be taken by the government which was announced as part of reform package presented by the Finance Minister, Asad Umar on January 23, 2019.
In this regard, an amendment has been proposed to be brought in the Federal Excise Act 2015 by introducing entry 55A, whereby it is proposed that FED @ 10 percent will be imposed ( ad val) on locally manufactured or assembled motor cars, SUVs and other motor vehicles of cylinder capacity of 1800 cc or above.
KLM maintains that as the ADP (2016-2021), KLM being the new entrant having category "A" Greenfield investment status is exempt from the applicability of 10 percent FED levy by virtue of clause 4.2.1(c) which clearly specifies the duty rates (10 per cent on non-localized parts and 25 percent duty on localized parts) applicable to a new entrant under category "A" for a period of five years.
According to the company, for the sake of abundant clarity the duty will remain constant for all models and their variants launched by KLM up to June 30, 2021( as per ADP) for a period of five years from the date of the launch of respective models/variants and no additional duties be imposed on the new entrant.
KLM decided to make investment in automobile sector on the basis of ADP 2016-2021, SRO 656(1)/2006, 693(1)/2006 as of the date of signing of new entrant agreement of December 18, 2018 which implies that the company has been exempted from any duties/levies/actions which could be imposed after the said date that could adversely impact the economics of the project.
"KLM is expected to start its CKD operations from July 2019 (within next six months) by introducing a product/model having engine capacity of 2000 cc (above 1800cc) and expects that 10 per cent FED will not be applicable to its products," said Muhammad Faisal, the company's Chief Operating Officer (CFO).
The company urged that in order to avoid confusion/ misunderstanding the government should notify that levy of 10 per cent FED on locally manufactured or assembled motor cars, SUVs and other motor vehicles of cylinder capacity of 1800 cc above, principally designed for transport off persons( other than those of heading 87.02) including racing cats of cylinder capacity of 1800 cc or above does not apply to new entrants who have been granted category " A" Greenfield investment status under ADP.
Another company Indus Motors which is in Pakistan for the last 30 years has also asked the federal government to remove FED on the SUV manufactured locally. With such measures local jobs and vendors who supply parts will lose out, it added.
Another auto company i.e. Indus Motors (IMC) which is in Pakistan for the last 30 years has also asked the federal government to remove FED on the SUV which is manufactured in the country. With such measures local jobs and vendors who supply parts will lose out.
IMC was the first OEM to have invested approximately Rs 3 billion to introduce Pakistan's first local manufactured SUV Toyota back in 2013. However, soon after its launch, previous government levied 10 per cent FED on its resulting 80 per cent drop in its monthly sales volume. While IMC incurred losses on this project, the biggest loser was government itself as without 10 percent FED, IMC was selling on average 190 units per month resulting in approximately Rs 370 million monthly duty/tax revenue for the government. With Levy of 10 percent FED Fortuner average sale volume dropped to just 35 units per month, resulting in massive drop in government revenue.
