Increase in Sales Tax: Brace for Higher Prices with the Increase in Sales Tax on These Cars

With the start of the new calendar year – 2024 – there was hope that this year would be different from previous years. The Pakistan auto industry, after all, has been reeling from low sales due to high prices and high auto finance rates, among other reasons. Major auto manufacturers had hoped that post-election Pakistan would see a people-friendly government with people-friendly policies. However, they are now waking up to a rude awakening – to increase revenue, the outgoing caretaker government has increased the General Sales Tax on cars from 18% to 25%. This is likely to further jack up car prices in Pakistan in the near future, further driving down their sales.

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In this blog, we will list the cars likely to be affected by this increase, as well as those cars that will be least affected. But first, let’s delve into a little background on this latest news.

FBR Proposal

The Federal Board of Revenue (FBR) proposed a change to the sales tax rate on locally manufactured/assembled vehicles to the Economic Coordination Committee (ECC) of the Cabinet. This proposal, titled “Rationalization of Criterion of Enhanced Rate of 25% Sales Tax on Locally Manufactured/Assembled Vehicles (PCT87.03),” was approved by the ECC on 14-02-2024.

Increase in Sales Tax from 18% to 25%

It’s important to note that the previous sales tax rate was 18%, which still applies to some vehicles. However, the new 25% sales tax will be implemented on locally made vehicles with engines smaller than 1,400 cc and prices exceeding Rs 4 million. Vehicles not meeting these criteria will continue to be taxed at the standard rate of 18%.

Locally Made Vehicles With Engines Smaller Than 1,400cc and Prices Exceeding Rs.4 Million

These cars fall in this category and therefore you can expect their prices to increase in the near future:

• Proton Saga 1.3L Ace A/T
• Honda City 1.2L M/T
• Honda City 1.2L CVT
• Toyota Yaris GLI MT 1.3
• Toyota Yaris GLI CVT 1.3
• Toyota Yaris AERO CVT 1.3
• Toyota Yaris ATIV CVT 1.3
• Toyota Yaris ATIV MT 1.3
• Suzuki Cultus Auto Gear Shift
• Suzuki Swift GLX CVT
• Suzuki Swift GL CVT
• Suzuki Cultus VXL
• Suzuki Swift GL Manual

As mentioned above, not all vehicles or cars will incur this tax increase. We will now list those cars which will continue to incur 18% sales tax rate.

• Suzuki Cultus VXR 
• Suzuki WagonR VXL
• Suzuki WagonR VXR
• Suzuki Alto VXR-AGS
• Suzuki WagonR VXL-AGS
• Suzuki Alto VXL-AGS
• Suzuki Alto VXR
• Suzuki Alto VX
• DFSK Prince Pearl

Conclusion

These measures, aimed at boosting government revenue, will significantly impact consumers already grappling with inflation and the local auto industry struggling with declining sales. Compared to 2022, car financing dropped by 26 percent in 2023, falling to Rs.251 billion by December from Rs.337 billion. Adding to this, there is a perception, real or imagined, that cars are overpriced and under-quality in Pakistan. In the midst of all this, the government increasing sales tax on cars surely puts many on the wrong foot as they start the new year.

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