AS one of the measures to expand revenue collection, the government has proposed a tax on luxury cars besides other items. The current imposition of taxes and duties on cars is levied progressively with engine capacity, which is something that merits a policy revision.

Cars with bigger engine capacity are generally subjected to higher rates of taxes and duties which is the case with the current proposal as well. This approach is not fair in the present scenario in which a number of expensive luxury cars are moving to low-capacity turbo-charged engines that produce similar or even higher power than cars with bigger naturally aspirated engines.

Presently, an imported European brand luxury car with a market price of over Rs30 million has a 1,500cc turbo-charged engine. On the other hand, a locally assembled Korean brand with a 2,500cc naturally aspirated engine has a price tag of less than Rs8 million.

If a luxury tax is levied on the basis of engine capacity, the locally assembled car with a bigger engine will attract a higher tax compared to the imported luxury car which costs almost four times more, but has a smaller engine capacity.

Hence, the tax on luxury cars should be imposed on the basis of the car’s market price rather than engine capacity. In order to promote the local automobile industry, the proposed luxury tax should be levied only on imported cars and not on locally assembled ones.

Aamir Malik
Karachi

Published in Dawn, June 28th, 2022