New definition of CKD to discourage bike manufacturing locally

Motorcycle manufacturers have alleged that the new definition of completely knocked-down (CKD) components for two-wheelers will discourage local production and impede the industry's development.

"Local and foreign investors will no longer be interested in this sector as all the required components to make a two-wheeler can now be imported," said Abdul Matlub Ahmad, chairman of Nitol-Niloy Group, which manufactures India's Hero motorbikes in Bangladesh. 

The National Board of Revenue (NBR) issued a statutory regulatory order (SRO) on January 28, changing the definition of CKDs to include gearbox and speedometer.

Now, local assemblers can import engines with the gearbox and speedometer instead of having to purchase them separately.

Officials of the NBR and related ministries said the SRO would be helpful for local assemblers as all finished components can now be imported. However, a number of industry people say that it would discourage fresh investments.

"This is because only the distributors of foreign brands which want to sell motorcycles in the local market without making any investment will benefit from this SRO," Ahmad said.

As per the NBR circular, there is no requirement to manufacture any component locally.

"So, local vendors will not require to develop their capacities and the industry will not thrive," Ahmad said.

The government formulated the Motorcycle Industry Development Policy 2018 to facilitate local production and diversify the country's apparel-dominated export basket.

The government aims to increase the sector's contribution to the gross domestic product from the existing 0.5 per cent to 2.5 per cent and expand the industry's capacity, which is largely based on the assembly of imported components.

On condition of anonymity, an official of a motorcycle manufacturer told The Daily Star that the new definition of CKD actually contradicts the policy as it would discourage local manufacturing.

Previously, assemblers were not allowed to import any painted parts of a two-wheeler, making it mandatory to manufacture certain components locally.

"But this bar has since been lifted and this will only benefit the assemblers," Ahmad said.

The NBR circular will also reduce the revenue generated from the motorcycle segment, he added.

Subrata Ranjan Das, executive director of ACI Motors, said that the government decided to change the definition to reduce the complexity of customs duty imposition.

The SRO will not discriminate against local manufacturers as the custom duty is 92 per cent for CKDs, while it is 38 per cent for local manufacturers, he said.

"This duty gap is reasonable. So, the change will not hamper local manufacturers." 

The policy aims to manufacture 5 lakh motorcycles a year by 2021 locally and double that by 2027.

Once the policy was formulated, Honda, Bajaj, Yamaha, Hero, and TVS started manufacturing motorcycles in Bangladesh, bringing together foreign and local investors.

Local manufacturers such as Runner, New Grameen, and Roadmaster are also trying to improve their technology and are going to export bikes to Nepal, Bhutan and other countries.

Policy support from the government helped significantly cut back the import of motorcycle components, saving foreign currency and boosting forex reserves.

However, a high official of a global motorcycle giant, which has a manufacturing plant in Bangladesh, said the new SRO would harm the industry's potential.

According to government officials, the SRO should boost motorcycle sales as it slashed the supplementary duty on two-wheeler components by 25 per cent to 20 per cent.

Sales dropped 11 per cent year-on-year to 4.7 lakh units in 2020 from nearly 5.30 lakh units, data from the Bangladesh Motorcycle Assemblers and Manufacturers Association showed.

A senior NBR official said the definition of CKD bikes had been revised based on the recommendations from the industries ministry.

"The new definition will be beneficial for companies to adopt modern technologies," he added.

An official of the industries ministry said it suggested the change in the definition so that assemblers can import sophisticated components.