The Finance Supplementary Bill recently unveiled by the Finance Ministry made some swift changes to the auto sector in Pakistan. The bill lifted ban on non-filers that barred them from purchasing vehicles over 1300cc in engine capacity. The local auto manufacturers previously decried the ban and cited it as the major reason in the decline of sales. Now, they have taken a sigh of relief and hope the sales figure will see a sharper upward trend.
Under the ban, cars like Honda City (1339 cc) and Honda Civic (1799cc) came under the figures stipulated in the ban. Honda Pakistan complained as the ban cut sales figures by a significant margin. These two models are the backbone of Honda Pakistan’s operations in the country.
After the removal of ban on non-filers, the government will also get its fair share of revenue from tax collection when new vehicles are purchased from the market. In struggling times, the government needs to funnel in more and more tax revenue to strengthen the economic condition.
New Federal Excise Duty (FED) Regulations
Moreover, the bill also imposed a 10 percent Federal Excise Duty (FED) on locally manufactured vehicles having a 1700cc or above engine capacity. Honda Civic, Toyota Corolla Grande and Toyota Fortuner are some of the popular cars that will get affected by this new regulation. Given the past year trend of price hikes, this new regulation will increase the prices of abovementioned vehicles exponentially.
Earlier an FED was imposed on vehicles with 1800cc or above engine capacities. As cars like Honda Civic and Toyota Corolla Grande are not precisely of 1800cc engine capacity as cite a figure below 1800cc, Honda Civic at 1799cc and Toyota Corolla Grande at 1798cc, these cars escaped the regulation.
For imported vehicles, the FED duty has been raised to 25 percent from 20 percent for vehicles of 1800cc or above. For imported vehicles of 3000cc or above, FED has been increased to 30 percent, making imported vehicles also expensive for the local buyers.
Adverse Effects of FED
FED will negatively impact auto manufacturers that sell vehicles in the segment 1700cc or above. Once again Honda is in hot waters as a significant portion of its sales will get affected. For Toyota, the Corolla lineup is very diverse and includes a 1600cc variant of Altis which can attract buyers away from Honda. Looking at the exterior, the 1600cc variant looks very similar to the 1800cc apart from some minor details like headlights and sunroof in some variants.
Moreover, in the light of new FED regulations, people will prefer vehicles with lower engine displacements. In this area, Pak Suzuki will surely take lead and attract buyers away from both Toyota and Honda. As mentioned earlier, the government is in dire need of increased tax revenue and luxury goods like vehicles of 1700cc or above will get tax aggressively as long as the budget deficit gap remains huge.
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