The Pakistani federal government has proposed several changes in the budget 2024 that will significantly impact the automotive industry. The proposed measures include the removal of tax exemptions and an increase in taxes on both imported and locally manufactured cars. These steps, according to stakeholders in the auto industry, could have detrimental effects on the industry.
Key Changes and Their Impact
Removal of Tax Exemptions
One of the major proposals in the budget is to remove the tax exemptions on hybrid and luxury electric vehicles. This change means that these vehicles will now be subject to the full range of taxes and duties. Previously, hybrid and luxury electric vehicles enjoyed certain tax benefits to encourage their adoption.
Increased Taxes on Imported Vehicles
For imported vehicles valued at $50,000 or more, the government has decided to eliminate the 50% tax exemption. This will result in significantly higher taxes and duties on these vehicles, making them much more expensive for consumers.
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Advance Tax on Vehicle Registration
Another significant change is the method of calculating the advance tax on vehicle registration. Currently, this tax is based on the engine capacity of the vehicle. However, the new proposal suggests that this tax should be based on the vehicle’s price instead of its engine capacity. Given the substantial increase in vehicle prices over recent years, this change is expected to raise the cost of owning a vehicle further.
Industry Response
Concerns from Auto Industry Stakeholders
Stakeholders from the auto industry have expressed serious concerns about these proposals. They argue that these measures will not only harm the industry but also fail to generate the expected tax revenue for the government.
Mian Shoaib Ahmed, Chairman of the All Pakistan Car Dealers and Importers Association, emphasized that the removal of customs duty exemptions on hybrid and electric cars will make these vehicles unaffordable for many consumers. This, in turn, will force consumers to opt for petrol or diesel-powered vehicles, increasing the country’s import bill for fuel.
Impact on Hybrid and Electric Vehicles
The removal of tax benefits on hybrid and electric vehicles is particularly concerning for the industry. Shoaib Ahmed noted that 1300cc to 1800cc hybrid vehicles are especially popular among the middle class due to their fuel efficiency. With the proposed changes, the prices of hybrid vehicles are expected to increase by approximately 1.5 to 3 million PKR, making them less accessible.
Production Challenges
Shaukat Qureshi, Secretary General of the Pakistan Electric Vehicle Manufacturers and Traders Association, echoed these concerns. He highlighted that the local auto manufacturing industry is already facing production challenges. For example, Toyota is currently only producing vans for police and other law enforcement agencies, while other vehicles are not being manufactured at all. The proposed budget changes could further cripple the industry.
Financial Implications
Increased Vehicle Costs
With the proposed budget changes, the cost of both imported and locally manufactured cars is set to rise. This increase is due to higher taxes and the removal of existing tax benefits. As a result, the affordability of cars will decrease, leading to a potential drop in sales.
Reduced Tax Revenue
Industry experts also argue that the proposed changes will lead to a reduction in tax revenue. As car prices increase and sales drop, the overall tax collected from the auto industry is likely to decrease. This counterproductive outcome suggests that the government may need to reconsider its approach to taxing the auto industry.
Lack of Industry Consultation
Both Shoaib Ahmed and Shaukat Qureshi criticized the government for not consulting the industry while drafting the budget. They believe that the inclusion of industry insights could lead to more balanced and effective policy measures that support both government revenue goals and industry growth.
Conclusion
The proposed changes in the 2024 budget could have significant implications for the automotive industry in Pakistan. While the government’s intention is to increase tax revenue and bring more people into the tax net, the potential negative impact on car affordability and industry health suggests that a more nuanced approach may be necessary. Consulting industry stakeholders and considering the broader economic impact could help create policies that balance fiscal goals with industry sustainability.