On March 8, 2023, federal government through an S.R.O. increased the Sales Tax rate from 18% to 25% on a specific set of items including 1,400cc locally-assembled automobiles, SUVs and CUVs. Many automobile companies, as expected, were quick to increase the prices of their vehicles. Though the tax increase is 7%, companies have jacked up the prices of their vehicles by more than 7%. This begs the question, what really prompts the auto assemblers in increasing car prices in Pakistan.
The Age Old Bogeyman
Rising cost of production due to an uncertain economy, which typically means a fluctuating foreign exchange rate and now restriction on the import of completely knocked down (CKD) kits, is the usual excuse for all auto assemblers while raising the price of their entire CKD fleets. Granted that the economic condition is tumultuous, the numbers do not back up what the auto assemblers claim.
According to an auto analyst at a leading investment banking firm, car prices have shot up by 11%, out of which 7% is due to the latest increase in Sales Tax rate and the remaining 4% is due to the Rupee weakening against the US Dollar. The numbers support this claim.
| Old Price | New Price | % Change | |
| Corolla Altis X 1.6 M/T | 5,576,000 | 6,169,000 | 10.63% |
| Grande 1.8 CVT (Black) | 7,039,000 | 7,799,000 | 10.80% |
| Yaris ATIV X M/T 1.5 | 4,911,000 | 5,429,000 | 10.55% |
| Revo G M/T | 11,184,000 | 12,409,000 | 10.95% |
| Fortuner 2.7G | 14,230,000 | 15,809,000 | 11.10% |
| Yaris GLi CVT 1.3 | 4,588,000 | 4,789,000 | 4.38% |
As can be seen, Altis 1.6, Grande 1.8, and Yaris 1.5 fall in the 1,400cc and above engine capacity, while Revo and Fortuner fall under the SUV category, which also attracts the 25% GST. However, Yaris 1.3 has an engine capacity smaller than 1,400cc and is a hatchback and hence it does not attract the new GST rate. Therefore, the company has increased its prices by 4%. However, the question remains, has the Rupee depreciated by 4% from the last Toyota price hike on February 20, 2023?
5 and Counting
So far, in the first 11 weeks of the year 2023, Toyota has increased its prices 5 times. That’s almost one price increase every fortnight. Yaris’s latest price hike was on March 8, while the previous hike was on February 20, 2023. We need to know whether the Rupee lost at least 4% of its value against the US Dollar in this time period to justify Yaris’s latest price hike.
On February 20, 2023, Rupee’s interbank rate was Rs.262.13, while on March 8, 2023, the same was Rs.279.37, which is a difference of 6.6% in the given time period. So, Toyota is justified in increasing the prices of Yaris 1.3.
March 2022 – March 2023: Toyota Cars Are Now 39% More Expensive
Do you know, Toyota cars in March 2023 would cost you at least 39% more than if you were to buy them in March 2022? This roughly means that they cost Rs.3.9 million more now than a year ago.
Previously, auto assemblers usually blamed a fluctuating foreign exchange for increasing car prices. GST wasn’t an issue and neither was the ban or restriction on the import of CKD kits. So, now we need to examine whether the Rupee has lost at least 39% of its value in the period starting from March 2022 and ending in March 2023, for these companies to justify their price hikes.
In March 2022, Rupee’s interbank rate was around Rs.178.9, while the current rate is already written above – Rs.279.37. This is a depreciation of almost 56%, while Toyota has increased the rates by 39%. Once again, Toyota is vindicated.
The Plot Thickens as KIA Makes an Entry
While simple arithmetic supports Toyota’s latest and year-on-year price hikes, things get complicated when you look at the price hike of other auto assemblers.
Let’s take one of Toyota’s local competitors as an example for comparative analysis. KIA, like Toyota, has also increased the prices five times this year. After the latest 7% increase in the GST, KIA has increased (on average) the prices of its CKD lineup by 6%.
| Old Price | New Price | % Change | |
| Sportage Alpha | 6,650,000 | 7,050,000 | 6.02% |
| Stonic EX | 4,900,000 | 5,200,000 | 6.12% |
| Sorento 3.5 FWD | 9,800,000 | 10,390,000 | 6.02% |
| Peugeot 2008 Active | 6,450,000 | 6,840,000 | 6.05% |
* Peugeot is included in the table as Lucky Motors owns it along with KIA.
So, while Toyota was quick to pass on the new GST rate burden and Rupee depreciation onto its customers, KIA has resisted the same and has only increased the prices due to an increase in the GST rate, which interestingly is 7% while KIA has increased the prices by 6%.
Let’s compare KIA’s year-on-year price increase.
Unlike Toyota’s 39% yearly increase, KIA increased its prices by 28%, which translates to around Rs.2.23 million increase in one year. Like Toyota, KIA is also vindicated since the Rupee depreciated by almost 56% in one year, while KIA’s prices were increased by 28%.
Conclusion
A few lessons to draw from this blog.
- Auto assemblers are not necessarily fleecing their customers in the name of economic uncertainty, fluctuating foreign exchange rates and restriction on the import of CKD kits.
- The cost of assembling a car in Pakistan has gone up in one year for a variety of reasons, increased GST being one.
- Not every auto assembler treats their customers equally. While Toyota is quick to pass on the burden to its customers lock, stock and barrel, KIA on the other hand, has absorbed Rupee depreciation effects between February 28 (date of second last price increase) and March 8, 2023.
There is a general perception that auto assemblers keep increasing prices out of greed. It is not so. Though, some are willing to share the burden with their customers, others aren’t. So, you should give your business to the one which is willing to shoulder the burden of Rupee devaluation with you, along with increasing taxes.
To know the updated prices of cars in Pakistan, visit OLX Pakistan New Car Page.
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