PkRevenue.com – Pakistan’s upcoming budget for the 2024-25 fiscal year may bring revisions to duty and tax structures for motor vehicles, according to analysts at Insight Research.
These proposed changes could have significant implications for both consumers and the auto industry.
Increased Withholding Tax: A Burden on Consumers?
One key proposal involves raising the withholding tax (WHT) on all vehicles exceeding 850cc engine capacity. Currently, filers pay a WHT of PKR 10,000 on such vehicles, while non-filers pay PKR 30,000. This increase would add another layer of financial burden to consumers, especially considering the auto industry’s existing struggles. High car prices and declining purchasing power have already dampened sales, and a WHT hike could further discourage potential buyers.
Advance Tax on Luxury Cars: Targeting Non-Filers
The government is also considering imposing a 24% advance tax on non-filers purchasing cars above 2000cc. This segment typically caters to a more affluent customer base. The current advance tax structure applies a tiered system based on engine capacity, ranging from 6% to 10%. This proposal specifically targets non-filers in the luxury car segment, potentially encouraging them to enter the tax net.
Leveling the Playing Field for Local Manufacturers?
The local auto industry has called for increased duties and taxes on imported used cars in the upcoming budget. This proposal aims to create a more competitive environment for locally manufactured vehicles. In March 2023, the government abolished certain duties on imported used cars, impacting the market share of domestic manufacturers. Raising import duties could potentially make locally produced cars a more attractive option for consumers, but it might also lead to a rise in overall car prices.
Incentivizing Exports: A Tax Holiday for Manufacturers
A proposal to grant a 7-year tax holiday to auto manufacturers who increase their exports is a potential positive for the industry. This tax break could incentivize companies to focus on expanding their export markets, not just domestic sales. This could lead to increased production volumes, potentially fostering economies of scale and ultimately bringing down production costs.
Tractor Sales Under Threat: Potential Sales Tax Implementation
The proposal to introduce a sales tax on tractors, currently exempt, could negatively impact tractor sales. Tractors are crucial equipment for the agricultural sector, and a sales tax would translate into higher costs for farmers. This could potentially hinder agricultural productivity and strain the finances of those relying on tractors for their livelihoods.
Revitalizing the Auto Parts Industry
The Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) has proposed various measures to revitalize the auto parts industry. These include:
• Shifting the assessment for imported auto parts from weight-based to unit-based customs tariff.
• Relaxing duties on essential raw materials not available locally.
• Removing the federal excise duty on the auto industry.
• Implementing a flat 5% sales tax on aftermarket parts production.
These proposals aim to reduce production costs for auto parts manufacturers, potentially leading to more competitive pricing for locally produced parts. Additionally, a streamlined import system and reduced duties on raw materials could incentivize increased domestic production of auto parts.
The upcoming budget’s final decisions regarding motor vehicles will likely have a significant impact on consumers, the auto industry, and related sectors. Whether these proposals translate into increased revenue for the government, a more robust domestic auto industry, or affordability for consumers remains to be seen.
