New budget threatens to bring bike assemblers to knees

Motorcycle assemblers and importers are worried over two new budget proposals, as they said both could dampen the business prospect of the bike market.
The budget for the financial year (FY) 2015-16 proposed to increase supplementary duty (SD) rates on imported CKD (completely knocked down) motorbikes to 45 per cent from 30 per cent, while imposed a condition that all CKD components of a motorcycle should be imported in unpainted condition.
They said that many assembling units of the two-wheelers could be shut as they would fail to cope with the fiscal measures, which would significantly raise the production cost of the popular transport if approved.
The importers and assemblers will now have to bring motorbike both in CKD or CBU (Completely Built Unit) form in unpainted condition, which would push up cost, because they will need to set up expensive paint shop.
President of Bangladesh Motorcycle Assemblers and Manufacturers Association (BMAMA) Matiur Rahman said the proposals came at a time when they try to recoup losses from political unrest that gripped the nation early this year.
"But unfortunately, the proposals have sent them on the back foot even after paying Tk 15 billion to the government exchequer in the outgoing fiscal in duties, taxes and VAT (value added tax). The sector has also directly employed 5,000 people," he said.
Mr Rahman said installation of a paint shop of international standard will need substantial amount of investment and technology.
The current bike market size of 230,000 units does not justify setting up of such plants for the assemblers, he added.
The association has already sent a letter to the Finance Minister requesting him not to proceed with the two proposals for the sake of the assembling sector. The association members are currently holding 90 per cent market share and representing global brands like Bajaj, Honda, Hero, TVS, Yamaha, Haojue and Mahindra.
Executive Director of Uttara Motors Ltd Kazi Emdad said, "It's true many countries impose higher duties on imported items to protect local manufacturing units."
But, he said, the duty-tax difference does not go beyond 40 per cent in other countries, but the assemblers are now paying 127 per cent in various forms of duties and taxes to the government. In contrast, local manufacturers pay only 15-20 per cent.
"Prices of quality bike are going beyond the reach of common people because of this gap," he said.
Uttara Motors is now holding 55 per cent share in local bike market and supplying motorcycles of India's Bajaj Group like Pulsar, Discover, Platina and CT 100.
Dr. Md. Shamsul Alam, executive director of Karnaphuli Industries Ltd, said motorcycles are considered an essential mode of transport for the middle-class people.
He said it would no longer be financially feasible for the assemblers to import two wheelers in CKD condition and thus the CKD sector would face closure leading to the losses.
"Motorcycle price would go up by nearly Tk 20,000 if the proposal of increasing SD rates by 15 per cent gets approved and installation of painting plant will require at least Tk 200 million (Tk 20 crore). So, it would be tough to do business," he said.
Sector insiders said several foreign brands like Honda, Hero and TVS invested in joint-venture with both public and private sector and under the current scenario the global brands might withdraw their investments.
They said the motorcycle penetration rate is only 8.0, whereas it is 70 to 80 in India and 300 in the Philippines.   
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