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Urgent need for small engine power cars in Pakistan

Muhammed Hanif Memon
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Urgent need for small engine power cars in Pakistan

People willing to take a shift from two wheelers to owning of small cars do not have much options in 660-800cc vehicles since Daihatsu Cuore, Suzuki Alto, Hyundai Santro etc had become a history in the manufacturing book of the local auto industry.

Pak Suzuki Motor Company Limited (PSMCL) had unveiled Wagon R 1,000cc from April 2014 after a gap of almost two years while consumers had still been awaiting any replacement of Cuore for the last two years.

The existence of Hyundai Santro Plus holds no importance as its production remained suspended from 2010-2011 to 2012-2013. Its manufacturer resumed its production with only 210 and 152 units produced and sold in 2013-2014.

In the meantime used car imports mainly small cars proved a bit relief to some extent but after change of age limit to three from five years coupled with cut in depreciation limit the import of used vehicles had plunged sharply, thus closing another option for the buyers of 660-800cc vehicles. Due to change in age limit, low engine power vehicles became unaffordable for many people owing to their high prices.

The Indus Motor Company (IMC) appears so far reluctant in introducing new 800 or 1,000cc vehicle as its management feels that it is unfeasible to roll out low engine power vehicle because of high price factor.

Pak Suzuki gave a substitute of famous Suzuki Alto in shape of Wagon R but it is premature to give any firm opinion about its future survival. Pak Suzuki closed down Suzuki Alto when its sales were thriving. It did not exist from 2012-2013 while in 2011-2012 its sales were hit at 16,288 units from 11,932 in 2010-2011 and 10,794 units in 2009-2010.  

Despite high prices and costly maintenance, good sales of cars like Honda Civic and Honda City surprisingly improved earnings of Honda Atlas Cars while IMC’s Toyota Corolla sales continued to remain in red. Even Suzuki Swift after a powerful start faced consumers’ reluctance who preferred used imported vehicles like Toyota Vitz, Toyota Passo, Daihatsu Mira, Nissan AD etc at the price of Suzuki Swift. 

From 2011-2012 sales of 4,977 units of Honda Civic, its overall sales jumped to 9,950 units in 2012-2013 and 9,933 units in 2013-2014. City sales swelled to 13,741 units in 2013-2014 from 11,285 units in 2012-2013 and 7,142 units in 2011-2012.

Toyota Corolla remained a big loser with sales falling to 29,087 units in 2013-2014 from 32,608 in 2012-2013 and peak sales of 46,207 units in 2011-2012.

Suzuki Swift achieved highest sales of 7,128 units in 2011-2012 which dropped to 6,096 units in 2012-2013 and to 5,128 units in 2013-2014.   

The above figures reveal that only Honda Civic and City remained the highest selling cars besides proving disastrous for struggling Toyota Corolla in terms of its flat sales.

However, the IMC now looks more determined to recover its past glory of highest sales of Toyota Corolla by introducing new models of Corolla with a bang for which it invested $100 million in technology transfer and production facility improvements.

IMC commenced taking customer’s order from July 16 for 1,800cc Corolla Altis Grande, the 11th generation Corolla which has been completely redesigned around the concepts of elegance and class-above prestige. 

The vehicles currently available are the Altis Grande CVT at Rs 2,299,000, Altis Grande M/T Rs 2,149,000, Altis 1.8 A/T at Rs 2,149,000 and Altis 1.8 M/T at Rs 2,024,000 (excluding withholding tax and Delivery charges). Lower specifications variants like XLI and Gli will be introduced shortly which may give tough time to Honda cars.

IMC has announced booking for the new model Toyota Corolla on partial payment of Rs 500,000. 

High engine power car makers are more hopeful that the sales of such vehicles will remain ahead of low engine power cars in the current year and Corolla is expected to take a big slice from the market share of Honda cars initially.

Sales will depend on the cash crops like wheat, cotton, rice, sugarcane etc as good crops encourage growers to purchase new vehicles.  Besides, sales prospects also appear positive in view of rising corporate and MNCs buying coupled with lifting of cars by traders and business community. Government’s buying despite austerity measures may also remain brisk in the current fiscal year.

As long as demand from filthy rich class remains high, the future of costly locally assembled cars is bright but there are limited varieties for the middle income group who want to switch from two to four wheelers.    

IMC claims to have got overwhelming response for its costly Altis as buyers rushed to the showrooms to book the car despite subdued demand in Ramazan.

It is to be seen what Honda Atlas does in bringing model change in Civic and City to take an edge in sales over new Toyota Corolla. 

Surprisingly, the most popular Suzuki Mehran 800cc sales faced turbulence from 2011-2012 (36,131 units), falling to 32,407 units in 2012-2013 and 29,509 units in 2013-2014. If the Punjab government would have not lifted Mehran under Punjab Taxi Scheme in 2012 then the sales figures would have been more depressing. 

Mehran’s high price and obsolete designs compel many people to take the risk of purchasing used 660-800cc vehicles. Pak Suzuki has not changed its design, interior and exterior since 1990 and only head lights and front grill are changed. The company took more than two decades to change to engine from Euro I to Euro II last year. It seems that buyers  have now realized that purchasing Mehran is not a good decision when the markets offer five year old car with much additional features, new designs, colors, centre locking, power windows, attractive dash board etc at slightly high price than Mehran.

Nobody knows as to why the government has not checked the assembler of Mehran for rolling out decades old and outdated Mehran for more than 20 years. 

The government and the relevant ministry should seriously ask the assembler of Mehran to end its production in Pakistan and introduce new 800cc model either Alto or other vehicle. 

Prime Minister Nawaz Sharif in his speech at 37th exports award of FPCCI on February 08, 2014 and PAPS auto show of PAPAM on March 6, 2014 in Lahore had expressed his wish for a complete Pakistani made car besides doubling exports of Pakistan.

He informed business advisory council, comprising of business and trade representatives, which would meet with government officials at least after every three months, while Prime Minister Nawaz Sharif and the relevant minister would also sit along with them and all business related matters would be sorted out, besides taking policy decisions on the spot to improve trade, exports and industry.

However, it seems that nothing serious has been done so far which is evident from the Auto Industry Policy (AIP) which was lying in the cold storage for the last six to seven months. Due to slow pace of work at the ministries and other departments – it is too early to see the implementation of the PM’s dream for a complete Made in Pakistan car. Pak Suzuki, which is the oldest assembler, has failed to materialize this dream as Suzuki Mehran’s localization level has been stagnant at 70 per cent. Its price had been raised frequently due to change in rupee-yen-dollar parity. 

In contrast, the closure of Suzuki Alto had shifted 1,000cc buyers towards Suzuki Cultus which is visible from its improvement in sales to 14,682 units in 2013-2014 from 13,308 units in 2012-2013.

After getting support of PAAPAM, Pak Suzuki has been taking up the case for many months urging the government to allow import of six HS Code, being CKD parts only, by removing them from the negative list of items importable from India.

S. No. HS Code Item Description:

1) 8703.2111 – – – -Components for the assembly/ manufacture of vehicles, for engine capacity not exceeding 800cc Car, CKD

2) 8703.2191 – – – -Components for the assembly/ manufacture of vehicles, for engine capacity exceeding 800cc but not exceeding 1000cc Car, CKD

3) 8703.2210 – – – -Components for the assembly/ manufacture of vehicles, for engine capacity exceeding 1000cc but not exceeding 1300cc Car, CKD

4) 8703.2311 – – – -Components for the assembly/ manufacture of vehicles, for engine capacity exceeding 1300cc but not exceeding 1500cc Car, CKD

5) 8703.2194 – – – -Components for the assembly/ manufacture of vehicles, for Mini Van engine capacity exceeding 800cc but not exceeding 1000cc Car, CKD

6) 8704.3110 – – – -Components for the assembly/ manufacture of vehicles, for Pick-up G.V.W not exceeding 5 tons, CKD

PSMCL has informed that they do not desire any change in duty structure for import of CKD Parts from India. Specifically, import duties of CKD Parts and A-max parts under SRO 656 and SRO 693 should remain same whether import is made from Japan or India or any other country.

The benefits highlighted by PSMCL are lower costs of CKD, Introduction of new models, technology transfer / joint ventures in parts manufacturing and possibility for exports.

However, EDB is of the view that the above mentioned proposal is not specific to the vehicles of Pak Suzuki Motor Company Limited, as the afore-said HS Codes are universal for all vehicles. Hence removing of these HS Codes would imply opening up imports of aforesaid CKDs of all vehicles from India.

Market sources said that Pak Suzuki has its own agenda regarding trade with India while other manufacturers offer different view. It means that there is no voice of the local car assemblers under the platform of Pakistan Automotive Manufacturers Association (PAMA).

Market people feel that there is no harm if the government accepts Pak Suzuki’s proposal as it would at least bring down the prices of cars besides resulting in introduction of new models at par with Maruti Suzuki. Reduction in prices of small engine power will also help a number of people who want to move on four wheelers from two wheelers.

The government, the concerned ministry and Board of Investment should reach those car assemblers either European, Korean or Chinese who are making 660cc cars. At least these cars can run 20-22km per liter of petrol almost equal to CNG consumption in brand new 800cc car.

A number of people are plying used 660cc vehicle and they are happy enough due to its petrol consumption.

However, Pak Suzuki is again lucky after getting orders for supply of 50,000 vehicles to Punjab government.

PSMCL, having over 50 per cent market share, has entered into an agreement with Bank of Punjab for sale of 50,000 units of Suzuki Ravi and Suzuki Bolan Van under “Apna Rozgar Scheme” of Punjab government. These vehicles will be supplied from October 2014 to October 2015 which is bound to improve the company’s earning by 13-20 per cent.

Punjab government has allocated Rs 25 billion for the taxi scheme in its 2014-2015 budget.

PSMCL has capacity to produce 3,000 units per month each of Ravi and Bolan on three shifts. The company sold 14,000 units of Bolan and 11,700 units of Ravi in calendar year 2013 (CY13).

The company also produces 150,000 units (on double shift basis) and sold 76,000 cars/LCVs during CY13 compared to 96,000 cars/LCVs during 2012.

Earlier in 2012, the Punjab government, under its taxi scheme, had given an order of 20,000 cabs to PSMCL. The cabs produced under the scheme had 60pc share (12,000 units) of Suzuki Mehran and 40pc (8,000 units) of Suzuki Bolan.

The government did not have any second option to buy the small cars other than Mehran due to non availability of small cars in Pakistan. It is worth to mentioning  here that people who take the opportunity of different government offer schemes also do not have any other option to use/buy locally assembled small car.

 

This exclusive article published in Monthly AutoMark Magazine’s August-2014 edition, www.automark.pk

Strong sales outlook for auto industry in 2014-2015

Muhammed Hanif Memon
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Strong sales outlook for auto industry in 2014-2015

The future outlook for local auto sector in terms of sales growth appears quite healthy in view of some decisions taken in federal and provincial budgets 2014-2015.

One of the most encouraging news was the cut in general sales tax (GST) on tractors to 10 per cent from 17 per cent which is bound to boost sales in the current fiscal year as price cut by Rs 30,000 to Rs 90,000 will encourage growers/farmers.

Another booster for the auto industry and its vendors came from the Punjab government which allocated Rs25 billion for the taxi scheme in its 2014-2015 budget which will improve the profitability of Pak Suzuki Motor Company Limited having over 50 per cent market share.

“Although details of the short-listed manufacturers are yet to be announced for the scheme, we see high probability of Pak Suzuki’s (PSMC) selection,” JS Research reported

“The leading local car manufacturer will provide vans/pickups which will be used as taxi in rural areas for mass transportation,” Sherman Securities said. If short listed, the yellow cab scheme can lift PSMC’s expected earnings in year 2014 and 2015 by 13 to 20 per cent, as earnings impact is likely to be spread over its Jan-Dec  reporting period. On a standalone basis, rough estimates suggest an annualized earnings impact of Rs10 per share for the company.

The contract of taxis may be given to Pak Suzuki Motors (PSMC) and Al-Haj FAW (local assembler in partnership with Chinese FAW group), as both are capable of producing small pickup-vans. Though the Chinese group is capable of producing vehicles like FAW X-PV and FAW-Carrier, which are slightly cheaper than the vehicles produced by PSMC, it is expected that PSMC remains a major beneficiary given its huge capacity and long association with the Punjab government in earlier schemes.

PSMC has capacity to produce 3,000 units per month each of Ravi and Bolan on three shifts. The company sold 14,000 units of Bolan and 11,700 units of Ravi in calendar year 2013 (CY13). The company also produces 150,000 units (on double shift basis) and sold 76,000 cars/LCVs during CY13 compared to 96,000 cars/LCVs during 2012.

“Earlier in 2012, the Punjab government, under its taxi scheme, had given an order of 20,000 cabs to PSMC. The cabs produced under the scheme had 60 per cent share (12,000 units) of Suzuki Mehran and 40 per cent (8,000 units) of Suzuki Bolan. Though this time, the government has quoted over 50,000 cabs to be distributed; however, based on current market prices and same proportion of Mehran and Bolan (60%:40%), it is estimated that 38,000 to 40,000 cabs would be distributed to fully utilize the Rs25 billion allocated for the project”,  BMA capital reported. Hopefully all vehicles will be distributed during within three years.

In contrast, the Sindh government had decided to provide 7,000 tractors in the current fiscal year.

Besides, short-term triggers, there are medium-term triggers which may lift overall sales of auto and allied which are,

Huge expansion in road network is anticipated in next few years which is considered to be a backbone of the economy. Pakistan’s road network which carries over 92 per cent of inland freight, any improvement will flourish service sector and eventually generate demand for autos and allied products. The present government  in collaboration with Chinese companies, will establish China-Pak Economic Corridor by the end of 2017 with total cost of $5-7bn which will be mainly funded by consortium of banks including China Development Bank, and Export-Import Bank of China. These projects include, Karakorum Highway (Raikot-Islamabad via Mansehra), Karachi- Lahore Motorway (Multan-Sukkur section) and Gawadar East Bay Expressway.

It is generally seen that economic slowdown has spill over impact on auto- industry. Pakistan’s auto-industry which is operating at only 30 per cent of its capacity, is down almost 30 per cent compared to 6 years back.. This is primarily due to the fact that Pakistan’s GDP on an average grew by only 3 per cent in last 6 years compared to previous 6 year average GDP growth of more than 6 per cent. With midterm plan to raise GDP growth to 7 per cent as envisaged by government under 11th Five Year Plan , 2013-18, which signals revival in auto industry as well.

To support rural economy, govt. Is likely to continue taxi scheme (as announced in Budget FY15) and allocate higher farm credit to support agriculture.

Stability in Pak Rupee versus the dollar also anticipated to positively impact auto sector as it may protect their gross margins.

Published in Monthly AutoMark Magazine’s August-2014 edtion. www.automark.pk

Hike in advance income tax for non filers may discourage on money

Muhammed Hanif Memon
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Hike in advance income tax for non filers may discourage on money

The government’s decision of making sharp increase in advance income tax for non-filers may augur well for the local industry as they believe that this will at least eliminate investors and curb premium on spot sales of locally assembled vehicles.

However, the decision may create some hassle for the local assemblers in view of cumbersome procedural requirements  and data confirmation of non filer but the decision may put help in curbing the menace of on money which used to thrive on investors’ presence.

Some authorised dealers said there will be no problem for filer of income tax. Out of total car sales in the country the share of corporate and government buying is 20-25 per cent followed by 15-20 per cent of car sales based on leasing. Buyers also include growers, farmers, businessmen and traders. They said that some 30 per cent of buyers’ category is vulnerable which do not pay income tax and it is to be seen how they would behave over the government’s decision. They said that the situation will clear in the next two months in terms of car sales.

Authorised dealers have issued the schedule for collecting advance income tax on purchase of new cars and jeeps relating to filers and non filers of income tax. The assemblers will collect the advance income tax as per decision taken in the Federal Budget 2014-2015 and will deposit the tax to the government treasury.

Pakistan Pak Suzuki Motor Company (PSMCL) had issued a circular to its authorized dealers on July 3, 2014 regarding ex-factory prices inclusive of advance income tax.

For example, the ex-factory price of Mehran VX and Mehran VXR is Rs 625,000 and Rs 678,000 on which Rs 10,000 advance income tax is fixed for filer and non filer. On Wagon R VX, Wagon R VXR and Wagon R VXL models whose price is Rs 899,000, Rs 1,049,000 and Rs 1,089,000 respectively, advance income tax on filer and non filer is Rs 20,000 and Rs 25,000 respectively.

Advance income tax on Cultus VXR is Rs 20,000 for filer and Rs 25,000 for non filer. The price of Cultus VXR is Rs 1,034,000. The rate of advance income tax on Liana RXI and Liana 1RXI for filer is Rs 50,000 and Rs 100,000 for non filer. The price of Liana RXI and IRXI is Rs 1,365,000 and Rs 1,444,000 respectively.

Swift DLX, DX STD, AT, DLX NV and AT NV whose price is 1,282,000, 1,418,000, Rs 1,330,000 and Rs 1,466,000 on which the dealers will collect Rs 50,000 for filer and Rs 100,000 for non filer.

Honda Atlas Pakistan will collect advance tax of Rs 30,000 and Rs 40,000 for filer and non filer on Honda Citi, while on Citi Aspire the amount for filer is Rs 50,000 and Rs 100,000 for non filer. On Honda Civic (all variables), Rs 75,000 will be charged from filer and Rs 150,000 from non filer.

Assemblers have asked their authorized dealers to carefully check customer’s status (either filer or non filer) on the website of Federal Board of Revenue (FBR).

According to changes in withholding tax law vide Finance Act 2014, purchase of car and jeep from a manufacturer will attract payment of adjustable advance tax and the obligation of collecting the advance tax has been placed on every manufacturer.

Where advance tax has not been collected by the manufacturer (as stated above) or at the time of import of a motor vehicle, the Excise and Taxation Department at the time of registration of vehicle shall collect adjustable advance tax.

In addition, payment of adjustable advance tax will also be attracted at the time of transfer of registration or ownership of a private motor vehicle within five years from the date of first registration and the obligation of collecting the advance tax have been placed on the Excise and Taxation Department.

On 1,801cc to 2,000cc, Rs 100,000 is for filer and Rs 200,000 for non filer. From 2001cc to 2,500cc the rate of tax on filer is Rs 150,000 and Rs 300,000 for non filer. On 2,501-3,000cc the rate for filer is Rs 200,000 and Rs 400,000 for non filer. On above 3,000cc the advance tax on filer is Rs 250,000 and Rs 450,000 for non filer.

In the category of rate of collection of tax at the time of collection of motor vehicle tax – Division III of Part IV of 1st Schedule, the rate of collection of adjustable advance at the time of collection of motor vehicle tax (token tax) is collected on annual basis in respect of private motor cars have been revised and higher rates have been prescribed for non filers. Up to 1,000cc the rate is Rs 1,000 for filer and non filer. In 1001-1,199 cc the rate is Rs 1,800 for filer and Rs 3,600 for non filer. On 2,000cc-1,299cc, the rate is Rs 2,000 and Rs 4,000 for filer and non filer. On 1,300-1,499cc, the rate is Rs 3,000 and Rs 6,000 for filer and non filer. On 1,500cc-1,599cc the rate is Rs 4,500 and Rs 9,000 for filer and non filer. In 1,600-1,999cc, the rate is Rs 6,000 and Rs 12,000 for filer and non filer. On 2,000cc and above, the rate is Rs 12,000 and Rs 24,000 for filer and non filer.

In case where motor vehicle tax is collected on lump sum, then up to 1,000cc the rate is Rs 10,000 for filer and non filer. From 1,001-1,199cc, the rate is fixed at Rs 18,000 for filer and Rs 36,000 for non filer. From 1,200-1,299cc, the rate is 20,000 for filer and Rs 40,000 for non filer while on 1,300cc-1,499cc, the rate is Rs 30,000 for filer and Rs 60,000 for non filer. From 1,500cc-1,599cc the rate is Rs 45,000 for filer and Rs 90,000 for non filer. On 1,600-1,999cc, the rate is Rs 60,000 and Rs 120,000 for filer and non filer. On 2,000cc and above, the rate of filer and non filer is Rs 120,000 and Rs 240,000 respectively.

To facilitate Excise and Taxation Department, a list of filers is available on FBR’s website to ensure that tax is deducted at source at appropriate rates. All individuals whose CNIC is not included in the list and all companies whose NTN is not included in the list, are liable to deduction of tax at source at higher rate.

Commenting on changes in withholding tax law, Chairman All Pakistan Motor Dealers Association (APMDA), H.M. Shahzad said first the government reduced age of used cars to three from five years followed by cut in depreciation limit to two years. In new Budget, the government raised import duties on used car imports and made changes in withholding tax law which would scared away buyers. Many people may not be able to pay these prohibitive taxes which mean the government is penalizing public for buying cars.

He said Pakistani citizens have become the highest taxed person in the world as everything of common use is taxed directly or indirectly.

 

Company Profile

Murtaza Hanif
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Click on following link to view company’s profile:

1) Raazy Motor (Hi-Speed)

2) Memon Motos (Super Star)

3) D.S Motor (Unique)

Monthly Automark September 2014

Muhammed Hanif Memon
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0
Monthly Automark September 2014

Monthly Automark September 2014

Monthly Automark August 2014

Muhammed Hanif Memon
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0
Monthly Automark August 2014

Monthly Automark August 2014

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Pakistani Companies Participate in CBI Export Coaching Program

Muhammed Hanif Memon
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Pakistani Companies Participate in CBI Export Coaching Program

THE HAGUE, 1 Sept. 2014. CBI, the Dutch Centre for Promotion Of Exports from Developing Countries today launched a five day seminar EXPRO 102 designed for enhancing the exporting skills of Pakistani Engineering Sector Exporters and also the capacity building of Pakistani Business Support Organisations who are stakeholders in the drive to enhance Pakistani Exports. With the Pakistan government planning an exponential growth in Pakistan’s exports, the initiative from the Netherlands Ministry of Foreign Affairs is well programmed for achieving its goals.

 

There are five Pakistani Engineering Sector Companies participating in the present Seminar with seven participants while there are two participants from TDAP. A-One Techniques, Haseen Habib, ESP, Al Hadeed and Comcept are the companies attending the current Seminar.

 
The countries represented at the EXPRO are Pakistan, Vietnam, Phillipines, South Africa and Indonesia, at the NH Hotel, The Hague, The Netherlands.

 

The Private Sector SME companies are undergoing a four year CBI Export Coaching Program, during which they are being coached and mentored by CBI Experts to make them stable exporters and lead their companies to export led growth. The present group has undergone local training in Pakistan through CBI Experts and attending Workshops on Market Research, Process Control and other on going training programs initiated by the CBI.

 

During the present Seminar, the EXPRO102 participants shall be led through the process of refining their Export Marketing Plan as well as training on Cultural Sensitiveness needed for export sales, Buyer Behaviour, Trade Practices etc. The group will also spend one day at the TIV, Hardenberg, The Netherlands. This regional  Trade Fair for sub contracting and networking will prepare the group participants for their entry to European trade Fairs.

 

The BSOD EXPRO102 Program is designed to steer Pakistan into new directions of Exports, and prepare them for Skills Training and improving skills levels of their staff, for  creating effective Sectoral Export Marketing Plans to achieve export-led of the Pakistan economy.

 

 

The five day Seminar is being conducted at the NH Hotel, at The Hague, Holland, by CBI Experts Julian Lawson,  Imtiaz Rastgar,  Jan Elferink, Peter Lichthart Allan Gozon, together with  Cor Dieleman, CBI Country Program Manager for Pakistan. Two officers from the TDAP are also attending this program as part of CBI BSOD Program.

 

CBI works on behalf of the Dutch Ministry of Foreign Affairs, to promote exports from developing countries to Europe. CBI has Export Coaching Programs running in the Engineering and Food Ingredients Sectors of Pakistan.

– PR by Imtiaz Rastgar

Registration of Auto vendors with EDB

Muhammed Hanif Memon
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Registration of Auto vendors with EDB

Registration of Auto vendors with EDB

Up to 2003-2004, when deletion programs were active in Pakistan, there was a compulsory process that all the parts manufacturers had to register themselves with the EDB. But from July 2004 to July 2014 (one decade) this practice was abolished.

“It is a good idea that the Engineering Development Board is again taking the issue of vendors’ registration with the EDB,” chairman Association of Pakistan Motorcycle Assemblers (APMA), Mohammad Sabir Shaikh said.

In Pakistan, a number of parts vendors have become entrepreneurs having staff of less than five persons but are not registered with the Sales Tax due to low volume of production and lack of knowledge and education, he said.

The EDB should avoid putting any pressure on such entrepreneurs that force them to pack up their businesses. However, they are genuine manufactures of many parts and supplying to small units through big vendors, Sabir said.

If the EDB wants to ensure registration of two three wheelers’ vendors with the EDB – the Board must include APMA chairman and vice chairman from Karachi and Lahore in a committee who will visit vendors for verifications otherwise the move to register vendors with the EDB would prove something negative. 

All the 2/3/4 wheelers are required to operate under the criteria defined in SRO 656(I)/2006 and procure their inputs through sources as defined in SRO 656(I)/2006 i.e. i) import through the system as per lists approved by EDB, ii) Manufacturing of parts through in-house facilities and iii) procurement from Sales Tax registered vendors having in-house facilities for the manufacturing of parts.

While submission of initial list and submission of reconciled records at the end of the year, it has been observed that certain vendors having no existence or traders operating under the garb of vendors are reported by the OEMs which has opened the window for pass through of parts and also encouraged the supply of sub-standard parts to OEMs specially of 2/3 wheelers.

This mechanism has also discouraged the localization of parts in the country besides causing revenue loss to the national exchequer.

It is also a fact that all the vendors reported by the OEMs in the list are not approved by EDB under SRO 655(I)/2006 because they do not use the concessionary regime of the SRO 655. It is also to inform that all the vendors are also not member of PAAPAM and as such it becomes difficult for EDB to ascertain their gentility without assessing manufacturing facilities these vendors possess, as they are not operating under the concessionary regime of SRO 655(I)/2006.

In order to have a complete data of the local vendors supplying parts to the OEMs, irrespective of their registration/ membership with EDB/ PAAPAM, it is proposed that all the vendors supplying parts to any of the OEMs should be required to register with EDB and made liable to provide status of their manufacturing facilities to be verified by EDB to ensure the procurement sources. This measure would create ample space for further localization and growth of industry.

The above issue will also be discussed at length in the 20th AIDC meeting to be held on August 18, 2014.

 

 

Federal Ministries, government departments need attitude change

Muhammed Hanif Memon
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Federal Ministries, government departments need attitude change

Federal government’s departments including the Federal Board of Revenue (FBR) need to change their attitude otherwise the situation pertaining to routine matters will remain the same.

After June 2006, the industry continues to operate under tremendous pressure coupled with step motherly treatment of federal government departments and ministries. Till today, bureaucratic hurdles and officials’ lethargic attitude still exist.

In the last 10 years, same people in the bureaucracy have been sitting on their seats who have seen three different governments in their tenure.

Like past the Federal Board of Revenue has recently issued sales tax audit notices to every motorcycle assemblers and their vendors. “Are these part of the policies which have been adopted in the last 10 years or there is some kind of pressure from the EDB,” chairman Association of Pakistan Motorcycle Assemblers (APMA), Mohammad Sabir Shaikh said. The language of the notices clear reflects the secret hand of the EDB in formulating the notices, he added.

The turnover of three to four big auto sector assemblers of cars and motorcycles is bigger than 500 small assemblers and vendors. But the government, like past practice, has always created problems for small units leaving big assemblers to operate freely.

According to sales tax notices, the FBR demands sales tax records under section 37 and 38 (2) of the sales tax act 1990 for the period 1.07.2011 to 30.6.2013.

The FBR informed the field commissioners to examine the assemblers and vendors of motorcycles in their areas that are they following SRO 656/2006 dated 22.6.2006 and check have they procured the parts and components from the importers and traders instead of original manufacturers.

It is also notable that the genuine manufacturers supplying parts to the OEMs are making parts by themselves or importing these parts from China as the cost of production of auto parts in China is much lower than Pakistan.

Assemblers have been asked to submit following documents for sales tax audit.

1)Purchase register and sales register.

2)Purchase invoices and bill of entries of imports.

3)Monthly sales tax returns and cash payment receipts to NBP.

4)Compliance of SRO 656/2006. These documents are provided to the EDB.

5)Utility bills

Chairman APMA Mohammad Sabir Shaikh said that for the last one decade the small assemblers have been facing these kind of problems.

He urged the Prime Minister Nawaz Sharif, Finance Minister Ishaq Dar and FBR chairman to stop these kinds of bottlenecks as the industry has already been surviving under stiff business and political environment.

The government should refrain from creating hardships and support the industry in order to pull out the assemblers from hot water, he said.

He urged the government to appoint CEO of the EDB immediately and try to fill this post by taking a competent person from the private sector or the industry.

Sabir said that the industry and the vendors were highly hopeful after taking over of PML-N government in 2013 but so far the political crisis appears to have deepened which has put on hold the future investment plans by the local industry.

He said there is a need to end the monopoly of big assemblers and vendors who enjoy upper hand in all the policy making in every government. As a result, the voice of small units remains unheard.

The political heat engulfing Islamabad mainly and other parts of the country since August 14 because of sit in by Pakistan Tehreek-e-Insaf and Pakistan Awami Tehreek is one of the main problems of people who are looking forward for change in government that can bring good industrial and government policies besides resolution of their genuine problems.

 

The rise and fall of Dewans

Muhammed Hanif Memon
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The rise and fall of Dewans

In June 2006, Dewan Mushtaq Group’s (DMG) sales were over $665 million. It was under a long term debt of $175 million on the books and posted a net profit of $5.8 million. A year later it announced its first net loss ever recorded. And a year later it was Pakistan’s largest bank defaulter.

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