Incentives, big tax cuts proposed for auto industry

The industries ministry has proposed big tax cuts and other incentives to automobile assemblers and parts manufacturers to boost local manufacturing.

It also wants an increase in import duty on automobile parts, and tax exemptions to local and foreign companies investing in the manufacturing of cars, buses, trucks and three-wheelers.

In a bid to make the investment opportunity even more lucrative to foreign investors, a draft of the automobile policy proposes offering them a 100% profit repatriation facility.

Recently published by the ministry, the draft Automobile Industry Development Policy 2020 also mentions a 100% duty exemption for companies importing capital machinery, and other equipment to set up complete knock-down (CKD) automobile and parts factories locally.

The proposed policy is taking Bangladesh's emerging economy and the demands of its large population into consideration and focusing on the local manufacturing of buses, trucks, auto-rickshaws – and their parts – as well as the production of eco-friendly electric vehicles and creation of skilled manpower for this purpose.

In the proposal, the government sets a target to locally manufacture 30%-50% of auto-rickshaws, buses and trucks within the next ten years starting from 2021.

Speaking to The Business Standard, Industries Minister Nurul Majid Mahmud said, "Pragoti Industries will manufacture vehicles in Bangladesh with support from the Mitsubishi Corporation of Japan." 

"Japanese automobile giant Toyota has also expressed its interest in investing in this sector. Additionally, there is a possibility that different countries including India and China will invest in Bangladesh. Nitol Niloy Group and some other local investors are interested too," he added.

"We have published the draft policy – prepared with support from Japan – in a bid to utilise such possibilities," the minister continued.

Data from the Bangladesh Investment Development Authorities shows that the country's automobile sector has the possibility of securing around $5 billion in investment, and providing employment opportunities for 15 lakh people. 

If the policy is approved, the government will provide special incentives to establish assembling and manufacturing factories for producing passenger cars, commercial vehicles – such as three-wheelers, buses, trucks, and tractors – and their parts. 

A factory manufacturing parts, which are alternative to imported ones, will get seven to eight years of tax holiday.

Automobile sector investors will get special rebates on import duty and exemption on taxes if they invest 1% of their annual turnover for research and development. The investors will also get tax benefits on capital machinery imports for setting up self-sufficient automobile factories.

The government will encourage companies to invest in manufacturing electric vehicles, batteries and establishing charging stations. Bangladesh will also create a fund to support acquiring technology for this purpose. 

The draft policy further mentions a development fund for automobile parts manufacturing. The fund will be used to support companies in manufacturing such parts.

The business community involved in this sector believes that if implemented properly, the facilities and incentives proposed in the policy will make a positive impact in increasing local and foreign investment in Bangladesh's automobile sector.

They added that business people have been asking the government for such a policy for more than a decade. 

Welcoming the business friendly policy, PHP Automobiles Managing Director Mohammed Akther Parvez said, "It is a contemporary policy to boost the local automobiles industries." 

"If the policy is implemented, our people will no longer need to ride in old cars. We will also no longer need to import second-hand cars. We will be able to use brand new made-in-Bangladesh vehicles," he added.

He continued, "For manufacturing a brand new car, we need 8,332 types of spare parts. If local manufacturers benefit from this policy, hundreds of spare parts factories will be established in Bangladesh, which will play a big role in a more vibrant economy."

Meanwhile, Nitol Niloy Group Chairman Abdul Matlub Ahmad said, "Bangladesh's automobile sector has generated interest among local and foreign investors. The implementation of the finalised policy will boost investment in this sector."

He continued, "We have already started to build a plant to manufacture electric vehicles in Kishoreganj. But work has been suspended for now due to the Covid-19 crisis." 

"When the situation improves, and more foreigners start arriving in the country, the project will move forward at full speed. We will be able to produce cars within the next two years," he added.

A local company named Bangladesh Auto Industries Ltd (BAIL) took the initiative to establish an automobile factory in Chattogram last year. The company will initially invest $200 million in the factory – to be built on 100 acres of land in the Bangabandhu Sheikh Mujib Shilpa Nagar.

The company's Managing Director Mir Masud Kabir told The Business Standard, "We are planning to invest $1 billion in the plant within the next five years." 

BAIL will manufacture two-wheelers, three-wheelers, sedans, hatchbacks, and sport utility vehicles (SUVs), and has plans to produce pick-ups, mini-trucks and multipurpose vehicles.

According to the BAIL website, it will manufacture state-of-the-art lithium ion powered Electric Vehicles (EV), motorcycle, three-wheelers, cars, SUVs, micro buses and mini trucks. The price of EVs will be affordable and almost 50% lower than that of imported used cars.

According to industries ministry officials, at a meeting last year, Japanese Ambassador to Bangladesh Ito Naoki informed Industries Minister Nurul Majid of Toyota's interest in investing at the Japan Economic Zone of Narayanganj.

The ambassador also recommended that Bangladesh formulate a realistic policy for its automobile industry. Following up on the recommendation, the industries ministry began preparing the draft policy.

Ito Naoki again conveyed Toyota's interest in becoming an investor in the country's automobile sector to Commerce Minister Tipu Munshi at another meeting in September this year.

Data from the local research organisation LightCastle shows that Bangladesh's automobile market was worth less than Tk500 crore ten years ago, but reached Tk1,400 crore in 2019.