Karachi, March 9, 2024 – Indus Motor Company Limited, the renowned manufacturer of Toyota cars in Pakistan, is currently assessing the implications of the recent 25 percent sales tax imposed on cars valued above Rs 4 million.
The Federal Board of Revenue (FBR) issued a notification on Friday, announcing an increase in the sales tax rate from 18 percent to 25 percent for all motor vehicles exceeding the Rs 4 million threshold.
In a corporate briefing reported by KTrade Research, the management of Indus Motor revealed that they are closely examining the impact of the sales tax hike on their car sales. The company is expected to disclose its decision on how to navigate this tax adjustment in the coming days.
The announcement follows the FBR’s move to increase the sales tax, affecting the automotive industry, particularly high-end car manufacturers. The government’s decision is aimed at generating additional revenue and addressing fiscal challenges.
Indus Motor recently released its financial results for the first half of the fiscal year 2024, reporting profits of PkR5 billion compared to PkR2.6 billion in the same period last year. The increase in profits is attributed to comparatively better gross margins, which were negative in the first half of the fiscal year 2023.
Despite the positive financial results, the company faced a 61% annual decrease in sales volumes during 1HFY24. This decline is attributed to factors such as increased car prices, higher interest rates, and limited availability of auto financing, which collectively contributed to lower consumer demand.
Addressing questions about the company’s plans for localizing operations, Indus Motor informed that it has submitted export plans to the government utilizing local raw materials. Ongoing discussions are in progress regarding leather and labor exports. Additionally, the company plans to export Completely Built Unit (CBU) vehicles to African countries and has announced a $10 million investment to localize the manufacturing of parts and components as part of import substitution plans.
While the company acknowledged the impact of imported cars on local demand, it also emphasized that there are currently no significant supply chain complexities. The production halt, as explained by the management, is a one-off occurrence based on the current industry demand, which is at approximately 40% of the company’s overall capacity.
The influx of imported cars has surged since the discontinuation of Regulatory Duty (RD) and Additional Customs Duty (ACD) in March 2023. Monthly imports of used cars skyrocketed to 2,000-3,000 units, compared to less than 800 units per month previously. Imported car volumes reached 16.6k units in 1HFY24, significantly surpassing the 6.6k units recorded in FY23.
Indus Motor remains optimistic about increasing localization rates for various models, including Corolla, Yaris, Cross, and IMV, with percentages expected to rise through ongoing efforts.
Looking ahead, the management anticipates challenges due to higher interest rates in 2024 and 2025, which may further impact consumers’ purchasing power. As a result, the company expects a gradual improvement in sales volumes over time. The evolving landscape of the automotive industry will be closely monitored, and stakeholders are keenly awaiting Indus Motor’s decision on navigating the implications of the newly imposed sales tax.
