A growing number of local and international companies are showing interest in setting up automobile assembling units in Bangladesh because the government has relaxed VAT on imported parts and on completely knocked down (CKD) cars.
PHP Automobiles Limited is already manufacturing cars of the Malaysian brand Proton at its plant in the Mirsarai Economic Zone, Chattogram.
The Nitol-Niloy Group has also recently set-up an assembling plant at Bhaluka in Mymensingh to produce electric cars.
Apart from these, China's Geely Global, Iran's Saipa, India's Tata and Bajaj, and Japan's Mitsubishi are interested in setting up automobile units in Bangladesh.
Mitsubishi even wrote to the Bangladesh Investment Development Authority (BIDA) on March 19 seeking a plot at an economic zone to set up a factory.
Bangladesh imports cars in two forms: CBU (completely built up) form, in which a fully assembled car is imported for sale; and CKD (completely knocked down) form, in which all the parts are imported and the car is assembled here.
The government recently relaxed VAT on imported parts and on CKD cars. Entrepreneurs investing a minimum of Tk500 crore for importing cars up to 1600cc in CKD form will get the facility.
Officials at the National Board of Revenue (NBR) say that PHP Automobiles gets this facility on the recommendation of BIDA.
"Car manufacturing is enjoying VAT exemption with some terms and conditions. This will facilitate new investment as well as create employment," said NBR's First Secretary for VAT policy Hasan Mohammad Tarek Rikabder.
"People will also be able to buy cars at a reasonable price," he added.
Meanwhile, the NBR has finalised a draft in accordance with the new budget, exempting VAT for car manufacturers. High taxation on imported four-wheelers is already in place.
The country imports more than 25,000 cars a year with an automobile market of Tk5,000 crore.
Local and international investors have proposed for a long time that the government should catch up with the growing market.
PHP Automobiles Limited established its factory at the Mirsarai Economic Zone in Chattogram in 2015 with an investment of Tk800 crore. The plant became operational in 2017 and is currently assembling Proton Saga, Proton Preve, and Proton Exzora cars – in a price range of Tk18 lakh to Tk27 lakh.
"We are the first private firm in the country to set up car assembling units," Director of PHP Automobiles (Marketing) Mohammad Mohsin told The Business Standard.
PHP Automobiles has long demanded the formation of a policy with VAT exemption to pave the way for manufacturing vehicles at a lower cost.
Mohsin said the VAT exemption would reduce the cost of cars and allow manufacturers to make a greater profit.
"We sell the Proton Saga for Tk18.5 lakh now. Before we started assembling it, importers used to sell the vehicle for Tk25 to Tk26 lakh," he said.
Besides making electric cars, Nitol-Niloy Group will soon begin manufacturing vehicles of the Indian brand Tata, said the group's chairman Abdul Matlub Ahmad.
"Although 25,000-30,000 cars are imported every year, most of those are reconditioned. If we get incentives, people will be able to buy brand new cars at a lower price," Matlub said.
Kazi Aminul Islam, until recently the Executive Chairman of BIDA, believes that the automobile market in Bangladesh has huge potential.
"We have talked to the Bangladesh Economic Zones Authority (BEZA) for a separate zone dedicated to automobiles. The schemes are being discussed," he said.
"The proposals of 3 Japanese car manufacturers and a number of others seeking to set up assembly plants in Bangladesh have been submitted to the commerce ministry," he added. "A Japanese manufacturer is slated to arrive this month to carry out a feasibility study for an assembly plant."
Importing a car is quite costly in Bangladesh with 25 percent import duty, 15 to 500 percent supplementary duty depending on the size of the engine, 15 percent VAT, 5 percent advance tax, 5 percent regulatory tax and 4 percent advanced trade VAT on tariff price of both new and reconditioned cars.
The supplementary duty is imposed on the total of tariff price and import duty. The high supplementary duty increases the final price of a car – making it four to five times higher than the tariff price.
For example, the market price of a Tata Nexon 1497cc car in India is Rs6.69 lakh, but the same car, when imported into Bangladesh, is sold for Tk24.90 lakh.