The Finance Supplementary (Second Amendment) Bill 2019 has been passed and its provisions have come into effect, including the 10% federal excise duty (FED) on locally manufactured cars of 1700cc and above engine displacement. As expected, the prices of Toyota Grande and other models have gone up, soon to be followed by Honda Civic.
From the onset of 2019, it has been a tumultuous year for Pakistan’s automotive industry, to say the least. It seems the government couldn’t decide whether non-filers should be allowed to purchase locally manufactured cars. From imposing a complete ban on them to partially lifting the ban to now allowing them to purchase locally manufactured cars of any engine displacement, one can only hope that the government won’t change its mind on this issue anymore.
However, there is one more aspect of the Finance Supplementary (Second Amendment) Bill 2019, which will directly affect all stakeholders in Pakistan’s automotive sector – the imposition of 10% FED on locally manufactured cars of 1700cc and beyond.
The government has literally pulled a rabbit out of a hat with the imposition of this duty. Without exaggeration, the prices of 1700cc and above cars have increased manifold, literally overnight.
What does the government hope to achieve with this latest move? One can appreciate that the government is trying to tax the rich but Grande and Civic are not just bought by the elite but by Pakistan’s upper middle class too, which has its spending limits. By jacking up the price of Grande Altis 1.8 MT from Rs.2,689,000 to Rs.2,957,900, the government is testing waters, which may backfire. Similarly, the price of Fortuner Diesel pre-FED was Rs.6,829,000, which after FED imposition is Rs.7,511,900.
A time may come, when the potential buyer of these cars will refuse to buy them due to the higher price, resulting in the decline of their sales. Car sales, by the way, are on the decline for the past many months. If there are fewer consumers, fewer models will be manufactured, which will, in turn, affect the profit margins of auto manufacturers. This may result in laying off workers working in these plants. To sum up, the imposition of 10% FED may have a trickle-down effect and it won’t be pretty.
PakWheels, in addition to being Pakistan’s biggest online market place for buying and selling of cars, is also the leading voice of automotive consumer rights. This platform will be used to voice and advocate consumer rights in future too. So, stay tuned.
