Auto Assemblers Reject Proposed Withholding Tax on Invoice Prices

Auto Assemblers Reject Proposed Withholding Tax on Invoice Prices

Karachi, June 3, 2023 – Local auto assemblers have strongly opposed a budget proposal for the fiscal year 2023-24 that suggests levying the Withholding Tax (WHT) based on invoice prices of motor vehicles instead of engine capacity. Industry representatives argue that this change could further distress an already struggling auto sector, leading to a decline in sales.

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The Pakistan Automotive Manufacturers Association (PAMA) has conveyed its objections to the Chairman of the Federal Board of Revenue (FBR) through a letter. Currently, the withholding tax is imposed based on the engine capacity of automobiles, allowing buyers, both filers and non-filers, to determine the exact tax amount applicable to their vehicle purchase under Section 231B of the income tax ordinance.

However, PAMA has raised concerns that the proposal to levy the WHT based on invoice price is under consideration for the upcoming budget. The association argues that this shift would significantly increase the withholding tax, resulting in higher sale prices and negatively impacting sales. PAMA urges the FBR to reduce the current engine-based WHT to support the struggling auto industry.

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PAMA emphasizes that altering the long-standing practice of basing WHT on engine capacity in favor of invoice price would not only adversely affect sales but also undermine the simplicity and convenience of the existing tax structure. The association strongly recommends maintaining or further reducing the current withholding tax structure under Section 231B.

The letter from PAMA warns that any further increase in the tax amount would severely impact an industry already burdened with over 40% per unit tax. The auto sector has faced significant challenges, and the proposed change could exacerbate the hardships faced by manufacturers and dealers.

In a separate letter to Prime Minister Shahbaz Sharif, Pak Suzuki Motor Co. Ltd (PSMCL) highlights the dire situation the company is currently experiencing. Pak Suzuki reports substantial losses of Rs. 12.9 billion in the first quarter of the current year due to economic uncertainties. The company is implementing frequent “No Production Days,” and its dealers and vendors are struggling, with some even closing down or on the brink of collapse.

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Considering these circumstances, Pak Suzuki appeals to the Prime Minister to refrain from imposing any new duties and taxes in the upcoming federal budget, especially for vehicles up to 1000cc.

The concerns expressed by the Pakistan Automotive Manufacturers Association and Pak Suzuki Motor Co. Ltd underscore the necessity for careful consideration of the potential impacts of the budget proposal on the auto industry. Assemblers and manufacturers urge authorities to prioritize measures that support the struggling sector and avoid further burdens that could hinder its recovery.

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