KARACHI, Feb 23: The government has deferred imposition of 2.5 per cent Withholding Tax (WT) on locally-assembled cars for two months which will result in a price cut with the same percentage.

Local assemblers said they have started implementing the decision by not charging the said tax from new buyers.

The tax has been deferred in view of decline in production and sales for the last few months owing to uncertain political situation which emerged after the Oct 18 blast in Karachi, imposition of emergency in November and assassination of PPP chairperson Benazir Bhutto on Dec 27.

A spokesman for Pak-Suzuki Motor Company Limited (PSMCL), Shafiq Ahmed Shaikh, said the government decision would be effective from Feb 21 to April 20, 2008, and a notification had already been issued.

He said the company would not charge two per cent withholding tax on those cars which would be booked during the next two months. He, however, urged the government to maintain the deferment of the said tax till the announcement of new budget so that industry’s sales could improve.

Meanwhile, market sources said the cut in prices by 2.5 per cent was unlikely to bring any relief to consumers as car-makers had already increased prices of various models by Rs5,000 to Rs20,000 from this month, citing the reason of rupee depreciation against yen, which they claim had pushed up cost of imported kits.

All the manufacturers had increased prices in September 2007 after the imposition of one per cent Federal Excise Duty and 2.5 per cent Withholding Tax in the 2007-2008 budget.

An assembler, who requested anonymity, said there had been an overall slowdown in car sales and production for the last few months as non-taxpaying customers had virtually stopped buying locally-made cars after September since the Withholding Tax amount could not be refunded to non-taxpayers.

Only tax-payers would get the benefit of refund at the end of fiscal year.