The collection of withholding income tax from the sales of new cars by manufacturers in Pakistan has seen a notable uptick, marking a 28 percent increase during the first eight months of the fiscal year 2020/2021.
Sources within the Federal Board of Revenue (FBR) revealed that the withholding tax collection from newly manufactured motor cars reached Rs627 million in this period, compared to Rs488 million in the corresponding months of the previous fiscal year.
The data, sourced from tax collections at the Large Taxpayers Office (LTO) in Karachi, highlights a positive trend in the automotive sector. The increase in withholding tax collection is attributed to the lifting of restrictions related to the coronavirus pandemic, which has allowed for a resumption of economic activities, consequently improving the manufacturing and sales of domestically assembled motor vehicles.
The surge in economic activity during the first eight months of the current fiscal year has resulted in a robust performance for the local automotive industry. According to the Pakistan Automotive Manufacturers Association (PAMA), sales of locally manufactured motor cars witnessed a substantial 24 percent increase during this period, reaching 113,836 units compared to 91,515 units in the corresponding months of the last fiscal year.
Analysts at Arif Habib Limited have identified multiple factors contributing to this significant growth. Firstly, the acceleration in economic activity has led to a surge in demand for automobiles, boosting sales for locally manufactured cars. Additionally, the lower policy rate has played a role in stimulating the growth of the automotive sector. The reduced interest rates on financing options have likely encouraged consumers to make purchases, further supporting the positive momentum in car sales.
The increased withholding income tax collection from new car sales not only reflects the recovery of the automotive sector but also contributes to government revenues. The withholding tax mechanism serves as a means for the government to generate revenue at the point of sale, and the notable increase suggests a healthy rebound in consumer spending and economic activity.
As the fiscal year progresses, stakeholders will be closely monitoring these trends in the automotive sector. The data signals a positive outlook for the industry, indicating that the lifting of pandemic-related constraints has allowed for a revival in manufacturing and sales, bringing economic benefits and contributing to the country’s revenue generation. The continuing momentum in the automotive sector will likely be influenced by broader economic conditions, consumer preferences, and government policies in the coming months.
