KARACHI, June 12: The imposition of five per cent withholding tax on locally assembled cars and one per cent surcharge on imports will push the prices of locally made cars up.A buyer of a car worth Rs1 million will have to pay Rs50,000 extra, while a purchaser of a car priced at Rs500,000 will have to bear Rs25,000 extra. Similarly, a customer going for Rs1.5 million locally made car will have to arrange Rs75,000 extra on account of the new levy.

The budgetary measure will be implemented from July 1, 2007 but the assemblers and authorised dealers have started analyzing impact of the withholding tax on the car industry. Car makers and their authorised dealers said that there has been a slowdown in booking of new cars after the budget.

Market sources said that the dealers are verbally communicating to the new car buyers that they will have to pay extra money at the time of delivery following five per cent withholding tax on locally assembled vehicles.

An executive in a company, who asked not to be named, said the car makers are seeking clarification from the government whether the budgetary decision would apply to cars only or it also applies to locally produced commercial vehicles.

He said it was not clear as to who will be the collecting agent of the tax – the assemblers, leasing companies or banks or the dealers.

The industry was not expecting such a negative move from the government when five-year auto policy had already been announced, he said adding it was strange as to why the government had not levied the similar tax on the sale of imported used vehicles.

Chairman Pakistan Automotive Manufacturers Association (PAMA) Kunwar Idris was of the view that five per cent withholding tax was imposed on locally assembled cars rather than locally made commercial vehicles.

However, he said the decision will result in slowdown of sale of new cars. Besides, car prices will further go up with the imposition of one per cent surcharge on imports.

There will definitely be an increase in prices of cars because of withholding tax but this tax will be adjustable in the income tax at the end of the year for those, who are taxpayers and have NTN number. But non-taxpayers will have to bear the increase in prices, PAMA chairman said.

“A buyer will actually make the five per cent withholding tax payment to the government and not to the local manufacturers,” he said adding that the government actually wants every buyer to be a taxpayer and is trying to eliminate the role of middle-men in the car market, who are not genuine taxpayers.