The government wants to offer tax benefits to new investors to attract European brand after the tax authorities have opposed to provide tax benefits to the existing car manufacturers in the market due to their poor performance according to Pakistan Auto Policy.
The allegation of selling low-quality vehicles to consumers at high prices have backlashed in the form of preferential treatment offered to the new carmakers rather than to the existing ones.
Finance and Revenue Minister Ishaq Dar held a meeting in the presence of Board of Investment Chairman Miftah Ismail and Federal Board of Revenue Chairman Nisar Muhammad to discuss tax incentives which could be extended under the new Pakistan auto policy, the duty structure and definition for new investors were also discussed.
A summary has already been forwarded to the Economic Coordination Committee (ECC) by the Ministry of Industries after the Khawaja Asif committee ended its deliberations, FBR is still of the opinion that incentives should not be given to the existing carmakers.
A meeting of shareholders was called upon by Dar to evaluate if the incentives should equally be given to the existing and new car makers, amidst opposition from FBR.
Since three decades the existing carmakers are fulfilling the needs of the market however there is a huge demand and government wants Fiat, Volkswagen or Audi to establish in Pakistan. If they wouldn’t be given preferences and incentives it would be difficult for them to establish manufacturing plants where there already is a strong network of assemblers.
The summary of automobile policy revealed that the government had again offered similar tax incentives to the existing assemblers in a deceptive manner.
During deliberations, the Khawaja Asif committee proposed to delete the Category C that offered the same tax benefits to the existing players.
The committee also agreed that definition of the Category A that offers incentives to the new manufacturers should be slightly amended and the word “new brand” should be added to make sure that the existing players did not get the tax benefits.
However, Ministry of Industry’s summary also offered tax concessions to the existing players.
It has now been decided that words “new make” will be inserted in the definition to deny tax benefits to the existing players. However, the words “new brand” and “new investor” are again missing.
The FBR did not agree to the proposal of reducing the tax rate to 25% for non-localised parts of completely knocked down (CKD) units from 32.5% and 35% for localised parts of CKD units from 50%. Instead, it has proposed a gradual reduction that will still be higher than the rates proposed by the Engineering Development Board.
For completely built units (CBUs), the tax rates are proposed to be kept unchanged.