New auto policy in final stage, further negotiations with IMF on tax reforms

Islamabad: The preparation of the government’s new auto industry development policy has entered its final stage; however, the policy will be finalised only after further consultations with the International Monetary Fund (IMF) on some important tax-related proposals. According to government sources, the new policy is now likely to be introduced in the first week of August instead of July.

According to sources, the initial draft included a proposal to reduce the sales tax rate on vehicles up to 800 cc from 18 percent to 12.5 percent, however, the IMF stressed the need for further clarification on this proposal and a detailed assessment of the fiscal impact. For this reason, the relevant ministries have been directed to re-consult on the policy.

According to government officials, the Ministry of Finance, Ministry of Commerce, Federal Board of Revenue (FBR), Ministry of Science and Technology and Ministry of Law are jointly reviewing various proposals to formulate a policy that creates a balanced harmony between the country’s economy, industrial development and government fiscal goals.

Sources say that the government wants to introduce a long-term auto framework for the next five years, which aims to increase investment in the local auto industry, create new employment opportunities and introduce modern standards in vehicle manufacturing. The policy also proposes to phase in 62 UN international safety standards to bring locally manufactured vehicles into line with global standards.

The new auto policy places special emphasis on eco-friendly technology. The government’s plan is to encourage the production and sale of hybrid, plug-in hybrid and other fuel-efficient vehicles, while a strategy is being developed to gradually reduce dependence on conventional fuel-powered vehicles.

Experts say that if the proposed reforms are implemented in a balanced manner, there could be opportunities for new investment, technology transfer, local component manufacturing and improved export capacity in Pakistan’s auto industry. However, final decisions on tax policy and financial incentives will be taken only after the ongoing consultations with the IMF are completed.