Pakistan imposes additional taxes on car sales

KARACHI: The government in the mini-budget has increased the taxes and duties on various locally-assembled and imported cars, a research report by Arif Habib Limited (AHL) showed.

The local car assemblers will likely have mixed effects on their sales, as the government moves to curb the import bill by imposing additional taxes and increased duty on various vehicles.

The federal excise duty (FED) on completely built units (CBUs), with the engine capacity of above 1,000cc to 1799cc has been increased to 10 per cent from 5 per cent in the mini-budget, the report showed.

The CBUs with the engine capacity of 1,800cc to 3,000cc were also slapped with an increased federal excise duty of 30 per cent from the previous 25 per cent.

Similarly, the rate of the excise duty on the CBUs falling in the segment with the engine capacity of 3,000cc and above, has been enhanced to 40 per cent from 30 per cent.

This is expected to increase the sales of original equipment manufacturers (OEMs), including Indus Car, Honda Atlas Car, Pak Suzuki Motors and Lucky Motors.

The increased FED on CBUs is an attempt to curb car imports, as the government is stepping up its measures to reduce the import bill, which affects the forex reserves of the country, along with providing local assemblers the opportunity to capitalise on the local automotive market.

Likewise, the locally-assembled vehicles with the engine capacity of above 1,000cc to 2,000cc has seen an increment of 2.5 per cent to reach 5 per cent, along with an increased 10 per cent FED on the locally-assembled cars with the engine capacity of 2,000cc and above.

The move comes as against the government’s policy of promoting domestic products, as the increased duty on the locally-manufactured cars will likely to affect the sales of OEMs, including Indus Motors, Lucky Motors and other local assemblers.

The sales tax on batteries was also increased from 12 per cent to 17 per cent, but it is expected that it will not have a big impact on the sales, as the increase in the tax will be passed on to the consumers.

The sales of small car assemblers are likely to be affected the most, as the general sales tax is to be increased from 12.5 per cent to 17 per cent on cars with the engine capacity of above 850cc.

This will likely to have a negative impact on small car assemblers, including WagonR, Cultus, Bolan and Ravi (by PSMC), Picanto (KIA/LuckyMotors), and Alpha (United Motors), as cars over 1,000cc are already subject to 17 per cent general sales tax.

A 17 per cent general sales tax is to be imposed on hybrid electric vehicles over 1,800cc, this will have no effect, as there are no local manufacturers that produce electric vehicles.

The tax rate has been increased on the locally-manufactured vehicles sold prior to the registration by the person who originally purchased it from the manufacturers of Rs100,000 on up to 1,000cc car, Rs200,000 on vehicles above 1,000cc to 2,000cc and a tax of Rs400,000 on over 2,000cc and above vehicles.