The commerce ministry has sent a summary to the ECC along with the views and recommendations of Ministry of Industries, Federal Board of Revenue, Board of Investment and Planning Commission.
The Board of Investment had moved a case before Cabinet Committee on Investment (CCOI) to reduce Customs Duty on import of completely knocked down (CKD) kits of motorcycles from 15 per cent to 5 per cent as an incentive for ‘new investment’. The Engineering Development Board has strongly opposed the proposal of any reduction in duties on import of CKD kits of motorcycles. The local motorcycle manufacturers have also strongly opposed the proposal ‘to grant undue concession in duty to the new entrants in the motorcycle sector’.
They are of the view that the proposal is actually to favour a single entity that is striving to re-enter Pakistan with additional benefits in duty and without any program of start-up of localization namely “import of 100% CKD at 5% rate of duty”.
They said that reported basis of the decision to reduce duty is misleading and deceptive to falsely make out a case simply by condemning the existing industry with baseless allegations such as lacking competition and having infinite protection.
They pointed out that BoI proposal was earlier considered by the Cabinet Committee on Investment (CCoI) in its meeting held on January 24th 2012 wherein the Board of Investment faced embarrassment because of bringing a company specific case rather than a case for the industry as a whole. With that observation the matter was referred to Deputy Chairman Planning Commission to see it as part of tariff rationalization exercise. They alleged that the Board of Investment, which in years found only one bike maker as a potential investor, is deviously pursuing the case at the cost of sacrificing huge revenues, destroying the policy framework and subverting the gains by the existing industry for good.
They said the proposed policy shift, just to favour a single entrant, will allow 100% import of parts at 5% rate of duty, meaning that the favoured “new entrant” will need to invest next to nothing to gain access to this market. Motorcycle manufacturing in future will simply be an assembly operation. New models after every five years will require no local investment, or technology transfer.
This policy shift will create distortions in the market creating an investment and business environment that will be discriminatory against billions of rupees investment already made in the country. The existing players will be required to pay duties at a much higher rate and as a result will be rendered uncompetitive. Further, there seems to be no debate or consideration of the revenue loss this policy shift will create.
“If the government is sincere in supporting research and development in the industry a more logical way is to provide special incentives in the form of income tax and land purchase relief rather than lowering the tariffs on CKD and CBU”, they said.
They warned that allowing rollback in shape of new entrants with no local content requirement would be a great setback to existing investors, tax revenues, employment and industrialization in the country.
They said that National Tariff Commission (NTC) in its report to the Planning Commission on the “Protection of Motorcycle Industry in Pakistan” in April 2012 recorded gross errors of facts and misinterpretation of records.
“The industry feels that actual facts should also be made a part of the official record and that it’s viewpoint should also become a part of the deliberation process”, they said.