25% GST on “850cc Cars & Above” – Reports
The auto industry seems to get shock after shock, especially in the last few months. The devaluation of PKR against the USD, non-availability of Letters of Credit (LCs) by the State Bank of Pakistan (SBP), and then the imposition of a 1% General Sales Tax (GST) have led to three to four price hikes by just one car company in last two months.
Dollar, GST and Interest Rate – A Horror Story
The car companies are forced to shut down the production plants, meaning almost no bookings and very late deliveries. And the dollar once again flew high against the rupee as it gained Rs. 18 in a single day, taking the interbank rate to a historic high of Rs. 285. And above all that, there is news that the government will impose 25% GST on cars with engine capacity of 850cc and above. It is pertinent to mention that Finance Minister Ishaq Dar, in his mini-budget speech, stated that a 25% GST would be imposed on luxury items.
Last but not least, the State Bank of Pakistan (SBP) hiked the interest rate by 3%, taking it to 20% as the government desperately seeks the next IMF tranche.
“Luxury Cars” & 25% GST
As per media reports, the government has included cars among the luxury items, including mineral water, aerated water, juices, chewing gums, white chocolates, sweet biscuits, leather goods, rusks, cosmetics, etc., and home appliances.
The reported list also mentions mini vans and all imported cars in completely built unit (CBU) form. Also, vehicles with engine capacity above 850cc and sports utility vehicles (SUVs) will be taxed 25%, including their components and parts. It is yet to be seen whether only CBUs will be brought into this tax net or CKDs will also be affected. The experts believe that only CBU cars will be taxed, which will benefit the local car assemblers.
However, the picture will be cleared after the sales tax amendment notification is issued by FBR in the next few days. So, fasten your seatbelts, maybe even tighter, and wait for the notification.
In conclusion, the situation looks grim, and we are looking right in the face of another series of price hikes. Even if CKDs are not included in the 25% GST net, another depreciation of PKR and increased interest rate will target their prices in the coming days.
What is your take on 25% GST on cars? Do you think CKDs will be included, or is it just for CBUs? Please share your thoughts in the comments section.