When Finance Minister Ishaq Dar claimed that the government would not introduce new taxes in the budget, he wasn’t being completely dishonest. The auto sector was particularly concerned about the possibility of increased taxes such as Advance Income Tax, Capital Value Tax, and Custom Duty on new cars, as well as the imposition of Withholding Tax based on the invoice price. Fortunately, none of these taxes were implemented. However, while the finance minister’s statement was technically true, it was not entirely honest.
The latest budget can be considered a crime of omission rather than a crime of commission. The federal government has failed to address the auto sector’s needs, leading us to confidently predict that this industry will remain stagnant.
Dashed Hopes
Before the budget was presented, representatives from the auto sector had already informed the government about their urgent requirements, such as lower taxes and the ability to import CKD kits without interference from the State Bank of Pakistan. Although the government did not impose new taxes or increase the existing tax rates on new car purchases, they remained silent on the issue of importing CKD kits without permission from the State Bank of Pakistan. This lack of action is the main reason why auto manufacturers continue to shut down their plants, resulting in unemployment and other negative consequences.
With the current budget failing to address CKD imports, we can expect more plant closures by these companies, leading to disruptions in the sector’s supply chain.
Prices of Used Cars to Increase
Furthermore, the prices of imported used cars with engine sizes between 1,300cc and 1,800cc will increase. This change is due to the government removing the limits on fixed duties and taxes for importing pre-owned vehicles from ‘Asian Makes’ with engine capacities exceeding 1,300 CC. This modification was implemented by eliminating serial numbers 4, 5, and 6 from SRO 577(I)/2005. As a result, the prices of cars such as Vitz, Vezel, Freed, Grace, Aqua, and Prius will go up.
HEVs – Government’s Favorite Child
On a positive note, the government intends to allow the import of fully assembled Hybrid Electric Vehicles (HEVs) at a 1% duty rate under the Auto Industry Development and Export Policy (AIDEP). The import of HEV components will also be permitted at a 4% duty rate, provided they meet certification requirements and are subject to quota determination by the EDB. Additionally, the government has proposed reducing customs duty from 10% to 5% on unassembled parts of Heavy Commercial Vehicles (HCVs) that are not produced locally. Similarly, for plug-in hybrid cars, the import of parts will be allowed at a 3% duty rate under the same conditions.
In summary, the latest budget will not cause significant price changes in most cars in the country, but it also does not provide any advantages to the auto sector. Prices are expected to continue rising, while the value of the Rupee against the US Dollar continues to decline.
To know more about these topics, read:
Startling Revelations About Pakistan Automobile Industry: Are Auto Assemblers Lying to Us?
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