After the slashing of taxes for cars less than 850cc government has now reportedly announced the same for cars less than 1000cc.
According to the proposed budget on 11th June, the government was to slash the taxes on the cars less than 850cc to be brought down, with the elimination of the Federal Excise Duty and the reduction in Sales Tax from 17 per cent to 12 per cent.
During his speech in the parliament yesterday, Pakistan’s Finance Minister Shaukat tarin allowed the same exemptions to be extended to the 1000cc cars which are locally assembled.
So, in a nutshell, every locally assembled and produced car below and equal to 1000cc will be cheaper for the consumer beginning from 1st of July. The would increase the demand for cars as the sale price is expected to decrease.
In the 1000cc category, we have locally assembled cars including the Suzuki Cultus, Suzuki Wagon R, KIA Picanto, and United Alpha. Among the previously subsidized cars are 600cc Suzuki Alto, United Bravo, Prince Pearl, Suzuki Bolan, and Suzuki Ravi.
Impact of this policy
This will have a two-fold impact on the local production market. On the demand side, it will increase the demand for cars as the prices will go down due to the lower cost of production.
On the supply side, this slashing of taxes might incentivize more small engine city cars to be introduced and increase the competition as the cost of production is decreased and given the demand increases for the market.
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Firstly, this would decrease the price of cars by Rs70,000 to Rs127,000 according to Ismail Iqbal Securities.
Expected reduction in auto prices upto 1000cc cars pic.twitter.com/ZCDtTBLAXL
— Abdul Aziz – Noman (@nomanaziz83) June 25, 2021
Buying locally assembled cars may induce confidence among people in locally produced cars, which is a challenge for the producers.
In an interview with Profit magazine in 2020, a dealer named Tajamul Ashfaq said, “If we follow the Chinese model or even the example of India or any other country, the cars manufactured there are stamped by the country’s name.”
He added, “whereas, in Pakistan, anything that has a made in Pakistan stamp on it is automatically looked at with suspicion. We need a thriving industry that our consumers can not only trust but take pride in.”
Unfortunately, attempts at pulling something like this off have not been particularly successful. Tajamul mentioned United Bravo, a 600cc affordable car that has not done too well on the market because its Pakistani manufacturing has people questioning its quality.
However, this slashing of FED and Sales Tax might incentivize the producers to make better quality cars locally.
It must be mentioned that in February 2021, Lahore High Court (LHC) had directed the Engineering Development Board (EDB) to ensure the compulsory installation of airbags in locally manufactured vehicles. This is the recent attempt by the EDB and other regulatory authorities to get WP 29 regulations implemented in Pakistan.
Pakwheels’s CEO Suneel Munj talked about this sudden drop of policy onto the people and said that such a gap in giving such policy, referring to announcing the exemptions for the 850cc on 11th June and 1000cc on 25th June confuses the market, and reduces the trust of people in the market.
He similarly said that reports of incentivization of local production are coming with regards to the Auto Policy 2021-26, however, no official development regarding the policy finalization and publication deadline has been announced yet, puzzling the market.
It must be remembered that the government had announced an EV policy in December 2020, but no official implementation has been done.
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All this aside, the recent tax exemptions for the auto industry is a welcome move, that will hopefully make cars more affordable for the masses and improve the local manufacturing industry of Pakistan.