Tax holiday to boost local manufacturing of automobiles

The 20-year tax-exemption support announced in the proposed budget will definitely take Bangladesh's growing automobile industry to an impressive stage and promote local manufacturing, according to industry insiders.

Credible data is hard to come by but the sector players assume that annual automobile and three-wheeler sales reach no less than Tk 40,000 crore and are growing at 10 to 12 per cent on average.

Manufacturers are set to get a tax holiday for 10 years if 30 per cent of the components used are locally sourced and another 10 years if it is 40 per cent.   

The sector is now import dependent as no manufacturing plant has come about since the country gained independence some 50 years back.

This means the country has been spending millions of dollars to import vehicles every year. 

"This long term policy support will encourage investors and help develop the industry, which exemplifies the government's farsightedness," said Hafizur Rahman Khan, chairman of Runner Group.

"As investors we do expect this type of long-term policy support instead of frequent changes to rules and regulations," he added.

According to the chairman of Runner Group, this initiative will attract investors from both home and abroad.

"It was our long-running demand to set a policy for an extended period which will help the investors prepare and settle on a business plan," Khan said.

"I do believe the initiative to promote "Made in Bangladesh" practices will be fruitful as the government is showing its sincerity through this type of policy," he added. 

Abdul Matlub Ahmad, chairman of Nitol Niloy Group, said the tax holiday would help take the sector to the next level.

"I believe this initiative will attract more investment and is a really appreciable step of the government," he added.

Side by side, the government should give benefits to component makers to develop the industry, he said, adding that the automobile sector cannot be developed without the development of component makers.

Ahmad went on to say that the government should take initiatives to encourage component makers by providing tax holidays and duty-free import of raw materials.

According to him, the backward linkage and component manufacturing industries are the main factor behind the automobile industry as over a thousand types of components are required.

Mohammed Mohsin, vice chairman of the PHP Family, one of whose concerns is PHP Automobiles, which assembles four models of the Proton brand in Chattogram, also said the tax holiday would attract investment.

He said it would help the sector develop and create employment.

He thanked the government for the special privilege, saying it would help develop the backward linkage industry.

According to him, around 3,000 light engineering companies will benefit from this initiative and provide a good scope to improve the quality of products.

Now, most components for assembling cars have to be imported from Malaysia due to a lack of component manufacturers in Bangladesh, he said, adding, "We need component manufacturers in Bangladesh."

This decision will also be helpful in bringing competitive prices to the car market, he said.

Mir Masud Kabir, managing director of Bangladesh Auto Industries, which is establishing the country's first factory for electric vehicles, expressed satisfaction over the government policy support.

He also appreciated an associated condition of the policy that the investment must be of at least Tk 100 crore, reasoning that it would do away with the scope to abuse the policy.

According to him, the development of any sector depends on government policies and this policy would help consumers afford the products at competitive prices.

Taskeen Ahmed, managing director of Ifad Autos, said they were really optimistic about the sector for the investment and business-friendly initiative of the government.

He believes it would help attract foreign investors and create a good market in line with economic growth.

"We, the investors, spend millions of dollars on importing vehicles and automobile components every year. For this reason we need local manufacturing plants," he said.