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Policy reversal.

Byline: Aamir Malik-Karachi

SHORTLY after the announcement of the much-hyped five-year automobile development policy, the government has undone most of the incentives offered to the existing and new automobile assemblers and has imposed a massive increase in duties and taxes on both locally assembled and imported automobiles in the mini-budget.

Ironically, the government had envisaged the long-term growth of the automobile sector as a key enabler of the country's economic growth while announcing the new policy. However, it has made a mockery of it by withdrawing the incentives offered to the assemblers to invest in their infrastructure and improve the local production of automobiles.

In the first phase, stringent curbs on automobile financing were announced by the government on the pretext of 'cooling down' the automobile sector in the country. As if these were not enough, the apparent last nail in the coffin of the automobile policy came in the shape of drastic increases in duties and taxes apparently forced by the International Monetary Fund (IMF).

Such short-term and haphazard decisions have been the root cause of the local automobile industry's lack of technological progress over the years. Some new automotive assemblers had recently entered the market, while some more were contemplating to enter it.

With the government's recent U-turn on the automobile policy, the current and future investments in this sector would be put under serious jeopardy. And with decisions that are made and reversed in a span of a few months, how can the government expect the automotive sector to be competitive enough to export their products to other countries?

It seems that those government functionaries who negotiated the mini-budget with the IMF were either not aware of the measures announced recently under the new automobile development policy or were ineffective in their negotiation with the IMF. These harsh taxation measures would shatter the investors' confidence in the automobile sector, retard its growth and would render all local and imported automobiles out of the reach of the buyers.

The government should revisit this decision and should re-negotiate with the IMF to restore the duty and tax structure for the automotive sector as outlined in the Automobile Development Policy 2021-26.

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Author:Aamir Malik-Karachi
Publication:Dawn (Karachi, Pakistan)
Date:Feb 9, 2022
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