Cars and Petrol Prices To Increase Next Month?

Cars and Petrol Prices To Increase Next Month?

To appease the IMF and meet the revenue shortfall of almost Rs.220 billion, the federal government intends to introduce a “Mini Budget 2023 Pakistan ” in the Parliament as early as next month. Such measures in Pakistan have usually meant imposition of new taxes and/or increase in the rates of existing taxes on a variety of products. 

What does this mean for an average Pakistani? In this blog, we’ll anticipate its effects on the price of cars, petroleum products and more.

So let’s begin.

Will Cars Become Even More Expensive?

The answer most likely is Yes! The government is pondering to substantially increase Capital Value Tax (CVT) rates on both CBU and CKD (imported and locally assembled) automobiles. Currently, 1% CVT is being charged on cars with engines larger than 1300 cc and electric cars with batteries larger than 50 kWh. If this rate increases, what will it mean?

To illustrate the point. Let’s assume that the Kia Sportage AWD (1999 cc) is priced at Rs.7,149,000. Out of this amount, Rs.71,490 is the CVT on this SUV. If the government now increases the CVT from 1% to 2%, this tax will increase to Rs.141,550 , increasing the price of the SUV by at least Rs.71,490 (assuming that Kia increases its price). 

It is worth reminding our readers that the government always wanted to fix the CVT rate at 2%. However, at the insistence of FBR, the rate was fixed at 1% on July 1, 2022.

So, once the “mini budget” is passed, some cars will cost more. And though used cars do not attract this tax, their prices, too, will increase as the prices of new cars increase. 

Will Petrol and Other Petroleum Products Cost More?

Government is under pressure from the IMF to increase its revenues and meet the shortfall by levying even more taxes on the petroleum products. Currently, a petroleum levy (PL) of Rs.50 is being charged on per litre of petrol. This can go up, increasing the cost of petrol. What will exponentially increase the cost per litre of petrol is if the government decides to impose the General Sales Tax (GST) on petroleum products as well. Currently, there is no GST on these products. 

Currently, 17% GST is being charged in Pakistan on a variety of products and services, etc. If the government buckles under foreign pressure and imposes the GST, the per litre price of petrol will shoot up by 17%, assuming that international oil prices remain the same or worse, increase. 

Read: Fuel Prices in Pakistan Remain Unchanged

Mini Budget 2023 Pakistan: No More Inter Bank and Open Market $ Rates

One of the biggest bones of contention between the IMF and the government is that the former wants one exchange rate in the country. If the government gives in, the US Dollar is likely to shoot up, at least in the short term. This means costly imports. Everything we import, including CKD kits of locally assembled cars, will cost more. No brownie points for guessing that there’ll be an increase in the price of cars, both CKD and obviously CBU, etc. Not to mention the price of petroleum products. 

Once again, the presentation of “mini budget” in the federal Parliament is still in its early stages. The government has not laid out any new taxes yet. So, a lot of analysis is based on suppositions and rumors. This is an evolving story and we will update this space as we get to learn more.

We are interested in your comments. Please leave them in the section below. For the biggest variety of new and used cars in Pakistan, be it their sale or purchase, check out OLX Pakistan. 

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