In order to give a quick boost to the auto industry, the federal government has prepared an Auto Industry Development and Export Policy (AIDEP) 2021-26 with objectives of ensuring better quality, safety features in cars and affordability of small cars to Pakistani customers. The key features of the policy include tax exemption for locally assembled cars of 800cc engine capacity, ending additional customs duty, excise and withholding tax on small cars. A considerable reduction in import duty on electric vehicles is also part of the policy.
At a time when the country is passing through one of the worst economic crises, the drafting of a favourable auto policy is a welcome piece of news. Stakeholders claim that the local auto industry will produce around eight million vehicles in different categories annually by 2026. Additionally, the demand for vehicles is at an all-time high, rendering the automotive industry one of the fastest-growing investment avenues in the country.
A much needed tax relief to auto manufacturers can give a substantial boost to the local auto industry while investment by several Chinese automakers is thriving in Pakistan. The entry of new-energy vehicle manufacturers from China is increasing the prospect of a strong local auto industry in Pakistan. The automobile industry is a key sector in Pakistan’s industrialization and modernization efforts. So far, Pakistani manufacturing industries have failed to increase the level of export, which is considerably low compared to the import of different items. This difference is leading to a hefty payments bill through the national exchequer. Paying for imports can strain the resources in Pakistan where economic growth lags and foreign exchange earnings are limited.
The government needs to introduce industrial friendly policies and provide a conducive environment to local and foreign investors to make investment in the auto industry. At the international level, government needs to engage experts for branding of its local vehicles to make them more acceptable. Surely, these measures will help decrease the existing trade deficit. The real way to maintain a balance is to increase local productivity and focus on providing tax relief on imported body parts which are essential for manufacturing of quality vehicles in the country.
