TWO AND THREE WHEELERS
BUDGET PROPOSALS FOR 2010-11
TARIQ AHMED SAEEDI
May 17 - 23, 2010
Budget 2010-11 is on the card and it is expected to be unveiled in the first week of June. Usually, annual budget in Pakistan is completed in May, however the applications of the revenue-expenditure document continue throughout the year with the issuance of statutory regulatory orders (SRO).
This annual document is important since it determines the revenues from and expenditures for different sectors throughout the year.
Auto sector plays a crucial role in the economy of Pakistan and its promotion means prosperous engineering industry in the country with an increase in employments. Motorcycle manufacturing industry is flourishing in Pakistan. Total production of motorcycles has reached one million per annum. Pakistan is also exporting motorcycles to regional countries. While the policies for the industry are encouraging it to grow, auto sector experts are of the view that the government needs to bring some changes in the regulatory framework to foster developments in the industry and attract investments.
Current budget is simultaneously praised for its allocations to the development of auto sector as well as criticised for its lapse in introducing new provisions in the yet-to-successful Auto Industry Development Plan.
In the budget 2009-10 amendment was introduced in SRO 656/655 whereby original equipment manufacturers/vendors are required to submit their consumption data by August 15. However, according to auto experts time given in the SRO was short to compile the complete annual data.
On the other hand Engineering Development Board (EDB) has scarce resources to check the data of OEMs/Vendors. Modality of submission process was also not clear. Subsequently, the data were not submitted on time, thereby delaying verification of data, issuance of manufacturing facility certificates/quota. OEMs/vendors badly suffered in the form of loss of production and payment of demurrages etc.
This SRO needs to be amended and similarly deadline for submission of data must be extended to September 30, they suggested saying besides fifty per cent quota of last year should be allotted in Pakistan Revenue Automation Ltd (PRAL). Capacity building of EDB to enable it to quicken process of data handling is essential to enhance productivity in the sector.
Auto experts belonging to the business of motorcycle and three-wheelers assembling also proposed that EDB must be bound to point out discrepancy in data within seven days after receipt of data from OEM/vendors. The board should issue provisional certificate valid up to September 30.
Issuance of manufacturing certificate and allocation of quota have invited apprehensions of assemblers and vendors. It is relevant to mention here that validity of manufacturing facility certificate for auto industry is one year. Under SRO 656, only auto industry comes under this condition. Other industries are rather enjoying concessionary regime, this is a common complain of auto manufacturers and vendors. At least for five years this certificate should be issued so that time and money of manufacturers could be saved, they said adding physical visit to location of manufacturing can become mandatory.
Under SRO 656 there is a requirement for submission of data of local purchases by OEMs. This is unnecessary as no concession has been provided to OEMs in this regard. This exercise is the waste of resources of nation and precious time since energy is consumed in compiling such data.
The amendment was made under SRO 656 in the Budget 2008 whereby OEMs were restricted to purchase components from commercial importers, though such importers import parts at rates higher than that imported by OEMs. Importers should be alternative source of supply to OEMs. In international market, manufacturers give price discount on bulk purchase which saves country's foreign exchange and also provides the components at cheaper rates. Any restriction about purchase of parts is against the tariff based system.
At present, OEMs are bound to present Goods Declaration of Commercial Importers to prove that smuggled channels are not used.
Some of the imported materials are damaged in transit or broken during production. At present there is no provision available in annual consumption submitted to EDB by OEMs.
To make the submission of consumption by OEMs on practical basis instead of theoretical one a margin of at least 5 per cent to 10 per cent of production is to be allowed as margin for damage in transit or breakage during production.
REVISITING SRO 693/IMPLEMENTATION OF AIDP
SRO 693 was issued when the country production was less than 300,000 motorcycles per annum and local vendors were meeting the 65 per cent production demand. SRO 693 had protected the local vending industry.
A present the country has production of more than 1 million motorcycles per annum. Unfortunately, production capacity of vendors has been reduced to the extent that they are unable to meet the demand of OEMs.
Government formulated Auto Industry Development Plan (AIDP) to incentivise investments in to the high precision projects. Some of the prominent incentives are human resource development through auto industry skill development company; proper statutory rules and regulation; allocation of areas for auto cluster development; and statutory backing of auto industry investment policy.
A schedule has been given in the AIDP to delete the parts specified therein within five years for higher duty under SRO 693.
EDB has been unable to provide legal backing to the incentives mentioned in the AIDP.
Vendors are also facing the problems due to non availability of some of the components locally. They are forced to import it against high duty.
SRO 693 needs to include those parts under regulatory duties which are locally manufactured and
Components which are taken in SRO 693 in the last three years must be reversed and duty under SRO 693 be reduced to 25 per cent.
INCLUSION OF COMMERCIAL IMPORTERS UNDER SRO 693
At present, importers are free to import auto parts at normal rate and there is no additional duty on them whereas OEMs/Vendors have to pay the additional duty.
Tax deducted on supply of locally manufactured automotive parts @ 3.5% of vendor in Sole Proprietors or Association of Persons (Partnership Firm) is treated as full and final discharge of its tax liability. As a consequence to which vendor put this tax in their cost resultantly price of auto parts are increased. It would result in increase in manufacturing cost of OEMs towards their final products.
Valuation Advices issued by Valuation Directorate of customs are not publicly available. Consequently, importers don't not know about the valuation of the items they are imported which are shown to him at the time of clearance. This results in cost buildups.