Local car assembly struck by duty hike

The government's move to hike the supplementary duty on completely knocked-down (CKD) cars is poised to slow down the development of automobile assembling industry in the country, said operators yesterday.

The spike is going to reduce the competitive edge that local auto assemblers such as state-owned Pragoti Industries Limited have against imported completely-built units (CBU).

The move will particularly hit sport utility vehicles in the 2,001-3,000 cubic centimetres category, where SD is being increased to 150 percent from existing 60 percent, said Md Abul Khayer Sardar, managing director of Pragoti.

As a result, the cost of SUVs will rise 45 percent.

For pickups of the same cc, SD has been increased 40 percentage points to 100 percent, he said.

“We would have no option but to increase the price. Also, this will have an adverse impact on the orders we are currently working on,” he added.

Pragoti, under the Bangladesh Steel and Engineering Corporation, has been assembling and marketing cars, jeeps, buses, trucks and other vehicles since 1966. It took up Mitsubishi Pajero Sport in 2011.

Using its plant in Chittagong's Sitakunda, it has assembled and marketed 2,100 Pajero Sports. Recently, it started assembling Pajero Sport QX, according to Sardar.

Following Pragoti's lead other firms have also joined the bandwagon to assemble vehicles locally.

However, the SD on completely built unit cars between 2,001-3,000cc will not increase next fiscal year: it will stay at 200 percent.

“People will be more interested in importing new cars rather than develop the facilities here to assemble vehicles,” Sardar said.

Countries like Thailand developed their local automobile industry by keeping the import duty on CKD cars much less than that for CBU and extending other incentives, according to operators.

“But we are seeing the exact opposite of what needs to be done,” he said, adding that increasing the SD on CKD units would hinder the progress of the local assembly industry.

In case of CKD SUVs that are over 1,600cc to 2,000cc, the total import duty has been proposed to be hiked to 148.30 percent from existing 104 percent.

In contrast, the total tariff for CBU in this range will remain the same at 100 percent.

“This would discourage investment in this sector as local companies would lose their interest for car assembly plants,” said Shoeb Ahmed, chief executive officer of Rangs Limited.

Rangs has already invested significantly to import machinery, establish a factory as well as develop human resources, he said. “We have also paid for technology transfer,” Ahmed added.

Stakeholders say assembly is seen as the first step towards progressive manufacturing.

Bangladesh has been able to establish a motorcycle manufacturing industry from assembling due to tax benefits and incentives extended for import of CKD motorcycles.

The same could be done to encourage the development of the automobile industry, they said. The move will create employment opportunities alongside developing skill sets of human resources.

However, the proposed hike in SD will not only raise the expenditure for general public but the public sector as well.

For instance, the total tariff on CBU of double-cabin pickups ranging from 2,001-3,000cc has been increased 60 percentage points to 212 percent in the proposed budget.

The hike will push up government expenditure as the vehicles are mainly used in mega projects, such as the Padma bridge and metro rail, to carry equipment and materials.

Moreover, law enforcing agencies and other government organisations also use the pickups.

Some also observed that the reduction of import duty to import hybrid cars may not bring any fruitful result as the infrastructure and the other-related facilities are yet to be made available for the new technology.

Hybrid technology is expensive and the relaxation of tax would only help market luxury cars for comparatively lesser prices in Bangladesh and will not benefit the middle-class or the upper middle-class families, they said.

Some apprehended that the imbalance in taxation between hybrid and non-hybrid cars will encourage unhealthy competition in the sector.

Moreover, increased duty on prime mover or tractor trailers, which are used for the movement of big containers in port and by industries, is likely to push up costs.