Fragile laws are impeding the growth of automobile industry, around 15 percent of duty and tax have been reduced on imported cars which is considered a serious threat to local manufacturers of the industry as there sales are being declining, buyers are more willing to import cars instead of buying locally so ultimately it is only contributing Rs. 63 billion of tax however, the sector has potential to add more revenue in the national kitty, according to research report of the Federal Board of Revenue. The industry remains largest tax payer in terms of its contribution to customs duty, sales tax and withholding tax and if the similar laws will practiced further in future then the sector will drastically wipe out. Due to poor governance the sector is remained static although it is one of the most important economic sectors for generating more revenues, it contributes 2.8 percent of GDP to the country’s economic growth however, it was projected that it would reach up to 5.6 percent in the year 2012-2013. Total gross sales of automobiles were $2.67 billion in 2006-2007. The report said, “Pakistan Auto Industry Development Program (AIDP-2006) envisages achieving a critical mass of production, double the contribution of auto industry to GD with high focus on investment, technology up gradation, increasing its exports to US$ 650 million, enhancement in jobs alongside the development of critical components to further increase the competitiveness of domestically produced vehicles.” As per World Trade Organization regime, “the auto industry is generally faced by multiplicity of taxes; the presumptive tax regime has led to increase in prices of imported inputs and the finished goods. Component manufacturers are struggling to compete with under -invoicing, miss declaration and smuggling. Import of used parts is still continuing at a large scale.” The FBR reported that the liberalization of used car policy saw an increase of 87 percent in the number of used vehicle imports to 6,793 units. If such policy continues it will impede the growth of auto industry. The sales and production of Indus Motor’s Toyota and Daihatsu brands for the year ended June 30, 2011 has posted sales revenue increased to Rs 61.7 billion, up by 2.7 percent over Rs. 60.1 billion of last year; and the after tax profit decreased to Rs 2.7 billion, low by 21 percent of Rs 3.4 billion of last year. Earnings per share also decreased to Rs 34.90 as compared to Rs. 43.81 in the previous year. The automotive sector has explored the export market, such as 7563 motorcycles and 64 auto rickshaws were exported in the last financial year. However, 9022 motorcycles and 72 auto rickshaws have been exported up to (July- March) 2010-11. The Car/LCV sector has also exported 359 vehicles & parts worth US $ 1.58, the report said. However, events like the unprecedented floods and destruction in supply chain due to earthquake and tsunami in Japan, compounded with a general slowdown in the economic environment, lower GDP growth, rising interest rates, limited credit availability for auto financing, depreciation of the Pak Rupee against major currencies, unprecedented rise in prices steel and other inputs, inflation, etc impacted the demand negatively. “At present time, Indian automobile industry is making a major contribution in increasing the country’s GDP by 9 percent every year. Besides, the volume production is higher in India, 640,000 cars versus 40,000 in Pakistan. Therefore, a comparison of India and Pakistani prices should be made after adjusting the exchange rates and duty factors,” FBR said. Major companies like Tata Motors and Maruti Suzuki of India have material cost of about 80 percent but earning profits after tax of about 6 percent to 11 percent it is due to well developed tax structure in the country. However, the growth in production was not up to the mark that year. In 2007-2008, the production declined to 1, 87,634 units against an estimated target of 2, 66,543 units. In the current fiscal year they said the production is expected to decline to 1, 50,107 units that are half the projected target of 3, 13,486 units. In spite of an additional levy of 5 per cent excise duty, the revenues from automobile sector would decline by over 25 per cent this year due to declining trend. The industry paid Rs.63 billion cumulative taxes that the government has levied on automobiles. It added that motorcycle production hit the country’s record level of over 1.5 million units in 2010-2011 by the effort of Pervaiz Musharraf Government’s decision that opened bike market to low cost Chinese bikes. Auto sector now employs 192,000 people directly and around 1.2 million indirectly and has Rs 98 billion of investments and contributes Rs 63 billion as indirect tax in the national exchequer. The government of Pakistan had undertaken two major initiatives in the form of National Trade Corridor Improvement Program (NTCIP) and Auto Industry Development Program (AIDP) for the development of the automotive industry in Pakistan but no outcome has been witnessed till now except forecasting higher growth rate without taking any practical steps. Engineering Development Board (EDB) is actively implementing the AIDP to increase the GDP contribution of the automotive sector to 5.6%, boost car production capacity to half a million units as well as attract an investment of US$ 3 billion and reach an auto export target of US$ 650 million. Due to the increase in demand for sophisticated machinery, the government has allowed duty free import of raw material, sub components, components assemblies for manufacturers & assemblers. Total import bill of machinery stands at $2.195 billion in the fiscal year of 2007-08 which is 12.77% higher than that of the preceding year. The impressive growth in the machine tools and automation sector is directly proportional to the growth of the automotive industry which has become the fastest growing industry of Pakistan and contributes $3.6 billion annually to the country’s GDP. Report further said that the annual gross sales turnover of the auto industry, at present, stands at Rs210billion while export of auto parts is estimated at $35 million. As such, the increase in production turnover is projected to increase by 185 per cent while the exports of auto parts would make quantum jump
Posted on: Wed, 04 Dec 2013 15:40:30 +0000
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