FED imposition may negatively affect local automobile assembling: SBP

KARACHI: The State Bank of Pakistan (SBP) has said that the imposition of federal excise duty (FED) may negatively affect local automobile industry as imported parts would become costlier.

The enhancement of FED on imported vehicles could increase the demand for locally assembled vehicles. “However, because of increase in FED on the imported parts, automobile assemblers, who mostly rely on imported components, might be negatively affect,” the SBP said in its Financial Stability Review (FSR) released last week.

FED on imported vehicles has been amended from 20 percent on vehicles above 1800cc to 25 percent for vehicles between 1800cc and 3000cc, and 30 percent for 3000cc or above.

The central bank said that the automobile sector has the highest operational efficiency in the corporate sector.

“It has, however, faced a contraction in the gross profit margin in CY18, as the bar on non-filers against purchase of new car affected the demand and the devaluation of the currency put pressure on production costs and profit margins.”

Resultantly, local assemblers increased their prices to sustain profitability.

“The outlook is positive in terms of enhanced production capacity as Kia, Hyundai and Renault are expected to enter the market in the coming years.”

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