Pakistan’s government plans to raise duties on imported used cars. The proposed budget aims to boost local car industry. Taxes may increase by 30% for cars above 1800cc. Duties might reach 100%. Used cars up to 1800cc may face 15% duty. New and old hybrids up to 1800cc remain duty-free.
The move responds to a 255% surge in car imports. Imports hurt local automakers. $210 million worth cars imported last year.
Rs170 billion spent on car parts. Rs600 million spent on foreign exchange for parts. Local auto industry invested billions.
It contributed Rs400bn in taxes. It also created job opportunities. Imports soared in February 2024. 3213 units imported, up 713%. Used car imports rose to 30%. They were 4% in FY 22-23.
Used Car Sales Decline: Automakers in Pakistan Frustrated Over Proposed Tax Hike
The decision by the ECC has angered automakers in Pakistan. They believe that increasing taxes will harm car sales, which are already declining.
A source told Business Recorder that this might not work well, and it could mean even fewer cars sold and less money from taxes on cars. Right now, taxes are more than half of what people pay for cars.
The decision has confused the car industry, especially because they weren’t asked about it first.
Car sales in Pakistan have dropped a lot by 47.6% compared to the same time last year. This information comes from the Pakistan Automotive Manufacturers Association (PAMA).
PAMA, which represents car makers, wrote a letter to Caretaker Finance Minister Dr. Shamshad Akhtar to share their worries.
In the letter, PAMA highlights how the increase in sales tax will impact locally produced passenger cars, driving up their prices in a market already affected by high inflation.
The letter compares the situation to “killing someone dead,” emphasizing that the demand for automobiles is sensitive to price changes, and higher taxes will only worsen the situation.
PAMA also notes the rise in taxes on locally produced cars, contrasting it with the unchanged taxes on imported used cars, which are now capturing a larger market share.
This shift towards used imports is not only causing a loss of foreign exchange but also reducing government revenue.
PAMA questions the government’s expectation of generating an additional Rs4 billion in revenue through the tax increase.
To read our blog on “What is new in the Pakistan FY25 budget?,” click here
