CBUs: A Case of Too Many Cooks Spoiling the Broth

Only a week ago, in this space we had reported that the government intends to increase 50% import duties on completely built-up units (CBUs). A week before that, the government had intended to completely do away with their import for the next six months, only to quickly realize Pakistan is a signatory to WTO and can’t ban imports.

And if you think the government has now found its footing, think again. The Ministry of Commerce (MoC) has opposed the idea of raising import duty on imported vehicles (CBUs), which the Ministry of Industries & Production (MoI&P) had earlier proposed.

In a recently conducted meeting on the Auto Industry Development and Export Policy (AIDEP) 2021-26, it seems the two ministries were at loggerheads over how to take forward auto manufacturing in the country.

The main proposals put forward by MoC were:

No increase in import duty on CBUs
No easing of auto financing terms and conditions from the banks
No import of right hand drive CKD/SKD vehicles
Export of Pakistani made vehicles

MoC had further made the following recommendations:

Promotion of electric vehicles (EVs)
Hybrid vehicles, and
Hydrogen fuel cell technology

The two ministries were at odds with each other on the above mentioned points as well. Only recently, while proposing a higher import duty on CBUs, MoI&P had also proposed to restrict import of EVs. The ministry was of the view that such imports will only add to Pakistan’s widening Current Account Deficit (CAD).

For the import of hybrid vehicles (1501 cc – 1800 cc) as well, MoI&P had proposed to raise the import tariff from 15% to 50% to cut down CAD.

What MoC must be commended for is their proposal to discourage concessionary auto financing policies of banks. The ministry has instead advocated for concessionary auto financing for vehicles involved in public transportation.

Bottom Line

People do not know what is to happen to CBUs. Will they be allowed to be imported at the present tariff or at a higher tax rate or whether their import will be banned altogether for the next six month?

This jeopardizes decision making of the private sector which is involved in the business of automobile imports. With a depreciating rupee against the US Dollar, this will make them jittery even more.

It is therefore important that the government speaks as one voice rather than two ministries fighting over what to do with the local automobile industry for the next 5 years.

Let us know what you make of this rather confused and unfortunate situation.