KARACHI: Local vehicle assemblers are not happy with the new budget, and say the government decided to raise advance tax on motor vehicles above 1,600cc on its own as the industry did not propose it. The decision, they claim, is also discriminatory and will result in a drop in auto sales.

Advance tax on the purchase of motor vehicles above 1,600cc has been doubled, while a three per cent tax will be applicable on electric vehicles costing Rs5 million or more.

According to an analyst at Sherman Securities, Capital Value Tax (CVT) of 2pc on motor vehicles worth more than Rs5m had also been imposed. The government had already banned import of motor vehicles. The overall budget bodes negatively for the auto assemblers as these measures were aimed at curtailing demand in order to reduce costly luxury imports. The negative impact was more likely to be visible on high-end cars, while the demand for 1,000cc vehicles and below would be marginally impacted due to a higher price differential and fuel savings.

Lucky Motor Corporation Automotive Division President Muhammad Faisal called it an “overall good budget” under the prevailing economic circumstances. However, he believed, a few proposals were discriminatory and would adversely affect sales of locally manufactured vehicles.

For instance, the withholding tax (WHT) should be increased across the board and not just on a certain class of vehicles, he said. With the proposed increase in WHT on vehicles above 1600cc, some assemblers would get a massive advantage over competing products due to lower engine size despite competing in the same segment.

Mr Faisal said the government must increase WHT equitably without any exception. “This step will certainly encourage more documentation in the economy,” he believed.

Furthermore, the 2pc CVT would also increase cost of vehicles which would further dampen the already sluggish demand due to steep rupee devaluation, increase in federal excise duty, curbs on auto-financing along with other cost increases, he remarked.

He was of the view that assemblers were already struggling to manage their operations as they couldn’t get permission from the State Bank of Pakistan to open letters of credit since May 20 due to a recent condition enforced by the government.

Pakistan Automotive Manufacturers Association Director General Abdul Waheed Khan said their body had not proposed any increase in advance tax and it was the government’s own decision.

However, he said, it seemed this increased tax would be adjustable for tax filers and applicable to all non-registered vehicles, including used and imported new cars. The government had mainly focused on non-filers who bought costly cars without paying any income tax, he commented.

All Pakistan Car Dealers and Importers Association Chairman Mian Shoaib Ahmed believed the raise in advance tax did not apply to imported used cars, adding the entire budget was silent on the used car sector.

Published in Dawn,June 11th, 2022