Do you know that the automobile sector makes up approximately 4% of Pakistan’s GDP? This statistic alone highlights the immense significance it holds within the country’s budget. But, the auto industry experienced a staggering contraction of 42.48% during the first nine months of the previous fiscal year (2022-23) – the Economic Survey 2022-23.
With the recent presentation of the Pakistan Budget 2023-24, it becomes imperative to explore how this budget may further impact an already struggling auto industry. Join us as we delve into the potential consequences and impacts of this budget on the automotive sector.
Here we will also tell you if the car prices in budget 2023-24 will increase or decrease.
Highlights
- Customs Duty on lithium-ion battery parts is 0% (great news in terms of EVs/HEVs/PHEVs & electric bikes)
- Customs duty on non-localized (CKD) Heavy Commercial Vehicles (HCVs) is reduced from 10% to 5%
- 15% Customs Duty imposed on Tractors
- Customs Duty on the import of completely knocked down (CKD) buses and trucks has been reduced from 10% to 5%.
- 35% Customs Duty has been set on the import of car parts/components. The rate is the same for all car parts regardless of how basic or complex they are.
- The Custom Duty on the import of HEVs (CBU) import has been reduced to 1%.
- The capping on fixed duties and taxes has been withdrawn on the import of old and used vehicles of Asian Makes above 1300 CC under SRO 577(I)/2005 by omitting serial numbers 4,5 and 6 of the said SRO.
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Current Situation
Before we start to see the impact of the proposed budget for 2023-24, let’s see the current situation.
- Auto Industry 42.48% during the first 9 months of the outgoing fiscal year (2022-23)
- The government allowed the industry to operate at 50% of the capacity
- Rupee declined significantly (~Rs.200 in June 2022 to ~Rs.286 in June 2023, +43% – interbank)
- The policy rate gradually increased from 10% to 21% (+110%) that made it difficult for people to buy vehicles through auto financing
- All these factors reduced the demand, production, and sales of automobiles
- Passenger car production in FY 2023 (July 22 to March 23) was 87,820 units compared to the 166,768 units of the same period previous fiscal year (FY 2022). A decline of -47.3%.
- Passenger car sales in FY 2023 (July 22 to March 23) were 85,776 units compared to the 172,612 units of the same period previous fiscal year (FY 2022). A decline of -50.3%.
- Tractor sales in FY 2023 (July 22 to March 23) are 21,233 compared to 41,603 in the same period of the previous fiscal year (FY 2022). A decline of -49%.
- 2 wheelers & 3 wheelers production & sales dropped around -33.3% & -33% respectively in the same period.
This data shows that the automobile industry is going through its worst time since last year’s budget. The overall industry has contracted to nearly half as passenger cars production and sales dropped by nearly 50%. Even the sales of 2-wheelers and 3-wheelers have dropped by 33%. It shows even low-income people are finding it very hard to buy vehicles.
Now we have the current scenario, let’s see how the latest budget will impact the automobile industry.
Cheaper Batteries Means Cheaper EV/HEVs & E-Bikes?
The government has exempted lithium-ion battery parts from Customs Duty. It will not only promote local manufacturing/assembling of the Li-ion batteries but also reduce their price. It is great news for the electric and hybrid electric vehicle manufacturers. Due to this, the overall cost of these vehicles is expected to be reduced. The cost of lithium-ion batteries is one of the main elements in the cost of e-bikes. If their price is reduced, the price of electric bikes and scooters may decrease as well.
Car Parts to Become More Expensive?
A 35% Customs Duty has been proposed on the import of car parts/components. This rate is the same for all car parts regardless of how basic or complex they are.
Here is the list of these parts,
- Electrical components
- Mounts, clamps, dampeners, and other fitment components
- Luggage compartments
- Interior panels and padding
- Water and air hoses and channels
- Bumper and impact braces
- Engine and transmission assembly
- Suspension and brake components
- Wheels and tires
- Exhaust system
- Protective strips
- Spare tires and parts
- Bodywork
The Capping on Fixed Duties Withdrawn?
As per the latest budget, the capping on the fixed duties and taxes has been withdrawn on the import of old and used vehicles of Asian Makes from1300cc up to 1800cc under SRO 577(I)/2005 by omitting serial numbers 4,5 and 6 of the said SRO.
Before this, the government was collecting fixed duties and taxes on the import of old and used vehicles of Asian Makes as per the engine size, now the capping is withdrawn above 1300cc vehicles. With this proposal, the prices of these types of imported cars (Honda Freed, Grace, Vezel, Toyota Prius, Aqua, Yaris, etc.) may go up as the proposed W.H. tax will be applied on invoice price instead of engine size.
As stated in Business Recorder, this new proposal is also expected to increase the power of Customs officials which was not the case when the duties were fixed as per engine size in 2005.
Here are the details of the taxes and duties.
Car Prices After Budget 2023-24: Increase or Decrease?
Now, you must be wondering about the car prices in budget 2023-24, right? The impact of the overall budget on the automobile industry has been minimal. This is partly due to the existing struggles faced by auto manufacturers, who are already experiencing poor sales. The duties on car parts are now flat across all types. The removal of the capping on fixed duties and taxes for imported used vehicles above 1300cc of Asian Makes has been implemented. Additionally, the government has imposed some duties on buses, tractors, and commercial vehicles.
Despite these taxes and duties, the prices of cars and bikes are expected to remain largely unaffected. It seems that the most car prices will be un-affected due to this budget (other factors can affect them). The government’s intention to avoid burdening the automobile industry and preventing business closures is evident. However, considering the significant decline in sales and the industry’s job losses and reduced tax revenue, some may argue that the government could have reduced taxes and duties to stimulate industry revival.
In any case, it remains to be seen how the auto industry will fare in this situation where no relief has been provided.
What are your thoughts on the budget and its impact on the automobile industry? Tell us in the comments section below.
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