The removal of taxes causes a rush of investment in automobile assembly plants

Motor vehicle assembly plants have started attracting foreign and domestic investment after the government announced a 50 percent tax break on components.

As of June 5 of the current fiscal year, Nepal had received foreign direct investment commitments worth $1.15 billion from China to set up electric two-wheeler and three-wheeler factories, the Department of Industries revealed.

Investment pledges are for small and medium-sized industrial firms that will create 479 jobs, according to department statistics.

In March 2020, the government approved a $10.54 billion investment by South Korean automaker Motrex to set up a world-class manufacturing and assembly facility in the country.

The company aims to produce 50,000 passenger and commercial vehicles per year. 34,000 passenger vehicles, 15,000 SUVs and 1,000 commercial vans will be produced. Production will start with 5,820 units in the first year of operation.

According to the company’s proposal, the company will do 20 percent value addition while manufacturing the vehicles in Nepal and provide most of the jobs to locals.

Apart from foreign investors, local investors have also shown interest in the vehicle assembly industry.

According to the Customs Department, six auto assembly companies with a combined capital of Rs 6.83 billion have been registered with the Industries Department in the current fiscal year. These factories will create 1083 jobs.

CG Automotive Industry with a capital of Rs 1.31 billion proposes to assemble 10,000 two-wheelers, 3,000 three-wheelers and 10,000 four-wheelers annually. The company will employ 113 people.

MAW Auto is spending $1.51 billion on its factory, which will assemble 31,000 motorcycles and 19,000 scooters a year, and provide jobs for 144 people.

SG Autocraft with a total capital of Rs 3 billion plans to manufacture 2,100 electric two-wheelers, 600 electric four-wheelers (cars/SUVs), 1,200 electric three-wheelers and 120 e-buses annually.

The firm will also assemble internal combustion engines for two-wheelers, three-wheelers, four-wheelers and six-wheelers. It plans to turn out 10,500; 1500; 600; and 750 gasoline engines, respectively, per year. The company will employ 431 people.

E Bolt Mobility with a capital of 243 million dollars will produce 15,000 electric vehicles per year and provide jobs for 100 people.

Global Automobile will spend $464.59 million on its plant, which will assemble 30,000 motorcycles and scooters and 5,000 auto rickshaws annually, and create 150 jobs.

Dugar Auto Clinic has also entered the assembly industry and plans to roll out 24,000 two-wheelers and 4,000 three-wheelers annually. It has a capital of 300 million dollars and will employ 145 people.

STC Energy Industries will manufacture 600,000 units of various types of lead-acid batteries with an investment of Rs 530 million. The firm will create 200 jobs.

The government’s revised budget for the current fiscal year has provided for a 50 percent tax exemption on parts used by the two-wheeler assembly industry, up from the previous 25 percent.

The budget for the fiscal year 2022-23 has provided for exemption of 50 per cent excise duty and 25 per cent import duty on spare parts or raw materials required for the production of vehicles, if a car manufacturing or assembly industry is established in Nepal. four wheels.

The budget for the next fiscal year has envisaged imposing only 1 percent customs duty on raw materials or spare parts used by factories manufacturing electric rickshaws, motorcycles or scooters.

Golchha Group and Jagadamba Group have assembled Bajaj and TVS motorcycles in Nepal.

Dhurba Thapa, president of the Nepal Automobile Dealers Association, said many countries started as motor vehicle assemblers before becoming manufacturers.

Thapa said stability in government policy is important or the capital invested by investors could be put at risk.

“The assembly of vehicles is not a productive sector. In fact, it is corruption of politics,” said Pawan Kumar Golyan, president of the Confederation of Banks and Financial Institutions, speaking at a recent function.

“Importing goods mainly in foreign currency and adding little value does not contribute to the national economy and employment generation,” said Golyan, who also heads NMB Bank and Golyan Group. There should be 30 percent additional value.

“People who operate such factories are involved in the corruption of politics,” Golyan told the Post. “We need a labor-intensive industry,” he said.

“This benefits certain merchants and not consumers and the nation,” Golyan said. “Investments should not be made in an industry like this that has been made by political corruption.”

Golyan says the massive import and re-export of crude edible oil is another example of corruption in politics.

“Traders are getting into the ‘productive sector’ by exploiting a loophole and corrupting it.”

The power and influence of some business houses at the policy-making level have diverted investments to such low-value-added productive sectors instead of the real productive sector, an insider said.

Thapa said the removal of taxes on two-wheeler components had not resulted in a price difference between locally assembled and imported vehicles.

“There is no price difference between locally assembled vehicles and imported ones due to high running costs in the early years of assembly and low production volume, but this will change and assembled vehicles will become cheaper. in the following days”, he said.

“The provision in the budget for the next fiscal year will enable the consumer to experience the price difference,” said Thapa.

“Investment in assembly plants is not a priority area for banks as there is no comparative advantage,” said Upendra Poudyal, chairman of Nabil Bank. Tourism, hydropower and some areas in the service sector have a comparative advantage.

Poudyal said that investments should be made in the real economy. “Car furnishing cannot be practically introduced into the real economy,” he said. “Even if there is 20 percent value addition, it is good for the economy in a way.

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