Tax reliefs revamped to make vehicles affordable

December 23, 2021(MLN): With an aim to make the local industry sustainable, affordable, and immune to the forces on external accounts and currency devaluations, causing frequent boom-bust cycles in the auto industry, the government announced a bunch of incentives in the form of tax and duty relief on the existing and new entrants under the Auto Industry Development and Export Policy (AIDEP) 2021-26.

The goal of the policy is to grow the production capacity to 650k units per annum by 2026 from the existing capacity of 471k units.

Besides, this five-year auto policy’s focus is to increase the footprint of Electric Vehicles (EVs) and Hybrid Electric Vehicles (HEVs) in Pakistan for which major tax concessions have been given to local assemblers to innovate their existing product offerings in the EV and HEV segment, according to the AKD research.  

While much of the policies have already been incorporated and made effective through the FY22 budget, the federal cabinet on Tuesday approved fresh incentives that include a reduction in the duty structure for the new model launches (concessional CD of 15% and 30% on non-localized and localized parts, respectively). The said incentives will be applicable for the period of 3-yrs after the new model launch.

It is expected that the fresh incentives would be well perceived by the Original Equipment Manufacturers (OEMs) keeping in mind the upcoming developments. Going by the AKD report, the overall CAPEX of its auto universe has swelled 117%YoY in 9MCY21, among which the highest increase has been witnessed by PSMC (+470%YoY), suggesting the launch of 4th generation Swift in CY22 which may trigger a rally in stock in near future.

On the other hand, INDU is investing US$100mn to launch local HEVs in the country, thereby putting themselves ahead of their peers, Saroash Saleem, Investment Analyst at AKD said.

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