Petrol use surges as cars demand go up

Petrol use surges as cars demand go up

Petrol use surges as cars demand go up
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KARACHI: The demand for the automobiles in Pakistan has witnessed a significant surge in the last few years, resulting in an increase in oil consumption.

In the wake of the higher oil prices in the international market, which are hovering around $100 due the recent Russia-Ukraine war, Pakistan’s foreign exchange reserves are under severe pressure.

The country’s production of cars clocked-in at 18,356 units; buses and trucks 710; LCVS, vans and jeeps 3,552; farm tractors 5,640; while motorcycles and three-wheelers production arrived at 152,441 in January 2022, according to Pakistan Automotive Manufacturers Association (Pama).

Honda’s production in January clocked-in at 3,830 cars (Civic and City), Toyota produced 5,620 cars, Hyundai Elantra 237 cars, Suzuki Cultus 1,324 and Suzuki WagonR production arrived at 2,052 units,

Likewise, the sales of vehicles clocked-in at 179,794 units, of which 16,985 units were cars, 3,625 were LCVs, vans and jeeps, while motorcycles and three-wheelers accounted for 153,440 of the total sales, as per the Pama data.

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During the first half of the fiscal year 2022, the automobile industry experienced an increase in demand mainly due to economic growth, lower auto financing rates and a reduction in the price of vehicles on account of a reduction in additional customs duty, federal excise duty (FED) and sales tax (up to 1000cc category) through the Finance Act, 2021, a report by Indus Motors showed.

The automobile manufacturers produced 128,260 units during the first half of the fiscal year 2022, registering a 71.1 per cent increase, compared with 74,946 units produced during the same period of the last year, the report showed.

Over the last two decades, as the use of vehicles has increased significantly with the increasing population, improved infrastructure, the increased mobility of people from one place to another for jobs and improved living standards, the demand for automobiles has also increased.

While the mobility of the people has increased post-Covid-19, there is a meagre presence of sustainable public transport in the country, which could act as a substitute for the private cars used by the dwellers.

Talking about the implementation of one car per licence mechanism, Arif Habib Commodities Managing Director Ahsan Mehanti said that it is a complicated process, as people purchase multiple cars for their family members.

“The process of one car per licence is a complicated one and it is somewhat impossible, as most people having multiple cars, buy it for their spouse, children and family members. This measure will require the person to have a driving licence before buying any vehicle, disclosing the source of income, advance tax payments, tax returns filing and many other requirements, making it a tiresome and time consuming process.”

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“Even if the country is successful in this specific mechanism, it will not have a big impact on the oil import bill, as the biggest consumer of oil is the transport sector and the airlines,” he added.

“The taxes on luxury cars in Pakistan are one of the highest in the world, but these measures also could not reduce the import bill. The government should impose more taxes to discourage excessive use of cars, including increase in the tax rate on oil consumption. The oil import bill of the country has clocked-in at around $12 billion and it is expected to reach $22 billion in the fiscal year 2022,” Mehanti added.

The country is directly impacted with higher oil import bill. The oil bill surged 107 per cent to $11.7 billion in the first seven months (July-January) of the current fiscal year, compared with $5.64 billion during the corresponding months of the last fiscal year.

Energy and Economic Analyst Syed Muhammad Osama Rizvi said that the global oil prices are now at their highest in seven years, the last time crude was around the $100 mark was in 2014.

“I do not foresee a reduction in the import bill even if there is a restriction on the usage of multiple cars. If we look globally, inflation is soaring, as in the US it is at a 40-year high,” he added.

“Also, with the persistence of the supply chain disruptions, Baltic Dry Index and other indices are inching up. The difference between prices paid and received continue to widen. As such, these costs are and continue to be passed on to the consumers.”

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“The Russia-Ukraine conflict continues to stoke uncertainty. Semiconductors are also expensive given the issues mentioned above. In such a scenario, I personally do not think that such a measure will have a significant impact on our import bill,” Rizvi added.

In December 2021, in a move to curb the import bill, the government increased taxes and duties on various locally-assembled and imported cars.

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

In January 2022, the auto financing sector reached Rs352 billion, up 34 per cent on a year-on-year basis, a State Bank of Pakistan (SBP) report showed.

However, the same recorded a marginal decline of 0.4 per cent on a month-on-month basis, compared with Rs354 billion in December 2021, it added.

In September 2021, the State Bank of Pakistan (SBP) tightened the rules and regulations for auto financing, under which the maximum tenure of auto financing was reduced from seven years to five years, while the maximum tenure of personal loan was reduced from five years to four years.

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The maximum debt-burden ratio allowed to a borrower decreased from 50 per cent to 40 per cent.

Additionally, the overall auto financing limits availed by a person from all banks/development financial institutions (DFIs), in aggregate, will not exceed Rs3 million, at any point in time; and the minimum down payment was increased from 15 per cent to 30 per cent.

The central bank restricted the banks from providing auto financing loans on imported vehicles such as Mira, Days, Vitz and Aqua.

Pakistan’s car sales, including the sales of non-Pama members declined 25 per cent on a month-on-month basis to clock-in at 24,000 units in January 2022.

The country’s overall automobile imports were around $2 billion, of which the import bill of entirely and semi-knocked down kits for cars, bikes and heavy vehicles stood at a record $1.6 billion in the fiscal year 2021, compared with $727 million during the fiscal year 2020, while $386 million was spent for import of used and new vehicles in FY21, compared with $219 million in FY20.

Regarding luxury cars import, Mehanti said that the vehicles falling in the category of luxury cars are new technology-based, which is a need of the hour, whereas in Pakistan, the vehicles are not technologically advanced, compared with the international manufacturing companies.

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