Will Car Prices Increase Starting From July 2023?

The auto industry in Pakistan has been facing severe challenges for a long time, and if rumors surrounding the upcoming federal budget are to be believed, it is unlikely to improve anytime soon.

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According to the rumors, the government plans to impose withholding tax (WHT) on the invoice price of vehicles rather than basing it on engine capacity, which is the current practice.

Currently, the WHT structure is as follows:

If this proposal is approved, it would significantly increase the prices of automobiles in Pakistan, further hampering their sales. Auto manufacturers and assemblers are deeply concerned about this development, and an official from the Pakistan Automotive Manufacturers Association (PAMA) has written a letter to the Federal Board of Revenue (FBR), outlining their concerns and requesting a reduction in the WHT amount to help lower car prices and boost sales.

What Could Be the Price Increase in Cars After the Budget?

Let’s consider the example of the Suzuki Alto VXL AGS, a locally-assembled subcompact hatchback that currently costs approximately Rs.3 million (actual price is Rs.2,935,000). The current withholding tax (WHT) on this vehicle is Rs.10,000 for filers and Rs.30,000 for non-filers. If the government begins charging 1% WHT based on the invoice price, the WHT amount would be Rs.29,350 for filers and Rs.88,050 for non-filers. This means the price of this subcompact hatchback would increase by Rs.29,350 for filers and Rs.88,050 for non-filers. Consequently, there would be an increase in WHT of 194% for both filers and non-filers.

Considering the latest sales numbers, it is highly likely that this price increase would further decrease the sales of this so-called most-affordable locally-manufactured car. If people are already hesitant to buy the car at its current price, it is unlikely that they would be inclined to purchase it when the cost goes up.

It remains to be seen what measures will be implemented in the upcoming budget. The expectations and concerns of stakeholders in the auto industry will be significant factors in determining the impact of the budget on the industry’s future.

Please share your worries, concerns, and fears about the upcoming federal budget.