After the Economic Coordination Committee (ECC) had accepted the proposal to increase the General Sales Tax (GST) from 18% to 25% on all cars above Rs. 40 lacs but with engine sizes lower than 1400cc, the local industry is considering it a killing move which in turn bring more instability in the country’s already vulnerable car sector.
The Pakistan Automotive Manufacturers Association (PAMA) has strongly condemned the recent decision by the Economic Coordination Committee (ECC) to increase the sales tax on locally produced vehicles. Labeling the move as “killing someone dead,” PAMA argues that it will further cripple the already struggling auto industry and harm the Pakistani economy.
Key Concerns:
Increased Prices: The 25% sales tax hike applies to cars below 1400cc but priced over Rs. 4 million which will impact a significant portion of the market. This will inevitably lead to higher prices, deterring potential buyers in an already inflation-ridden economy.
Demand Decline: PAMA highlights a five-year trend of declining production and sales in the car industry. The price increase is expected to further dampen demand, potentially negating any anticipated revenue gains.
Unfair Competition: While local cars face increased taxes, imported used cars remain untouched, creating an uneven playing field and incentivizing used car imports. This leads to foreign exchange outflow and reduced government revenue.
Investor Confidence: PAMA warns that the decision will erode investor confidence and discourage further investment in the Pakistani auto industry.
The association urges the finance minister to immediately withdraw the sales tax increase. They propose alternative measures to generate revenue, such as broadening the tax base or imposing taxes on specific luxury car segments.
Impact & Potential Solutions
PAMA’s concerns raise valid points about the potential negative consequences of the policy. It’s crucial to consider the impact on various stakeholders, including manufacturers, consumers, and the national economy. The government should carefully evaluate alternative revenue-generating measures that minimize harm to the auto industry and encourage sustainable growth.
The PAMA’s notification highlights its perspective for a balanced discussion which requires considering government justifications and potential solutions. Exploring alternative revenue sources, promoting affordability through targeted taxation, and fostering a competitive domestic industry are crucial aspects to consider for a thriving Pakistani auto sector.
Poor PAMA and local assemblers; especially the old three. Used car imports have always been their go-to pet hate. Even though when in 2019, the import of used cars was essentially stopped through an SRO at the time, FBR itself admitted to taking a huge tax hit because of it of over 22 billion rupees in just the first 7 month of that Fiscal Year (2019-20). Something that PW itself reported on.
*https://www.pakwheels.com/blog/restrictions-on-car-imports-cost-fbr-rs-22-billion-in-revenue/
Stopping or rather making imports more difficult and expensive, cost the nation much needed tax revenue. Which is still the case to this day. But that is somehow OK and not an issue for PAMA or the national economy according to them. 🤷♂️
Then it was the turn of the new car brands entering the market. Again, the drums of doom were beaten by the old three/PAMA that that will spell the end for the local auto industry and them. So much so that even the Japanese ambassador was dragged into the discussions.
Then came the turn of the EV policy. Again, PAMA and all the local assemblers screamed doom.
Seems anything that means change in the lethargic ways of the local assemblers is “auto industry destroying”.
Aren’t the local assemblers/PAMA and by extension their parts vendors the businesses whose task is to “carefully evaluate alternative revenue-generating measures that minimize harm to the auto industry and encourage sustainable growth”? Talk about blame shifting.
I gave this example before. Last year in 2023, Morocco, who have an average 60% localization rate in their auto sector, brought in $8 billion to Morocco.
To our local cheetas, especially the old three, who have been sitting here for over thirty years and all boast around 50% to 70% localization and even to their local parts vendors; I have a simple question. With so much claimed localization, anything close to Morocco’s achievement in foreign business? Even a small fraction of that? Ever! 🤷♂️
If PAMA is saying that used car imports eat into the local companies’ share of revenue, then they are admitting two things right away.
1 – The local companies are STILL largely importers
2 – Majority of the expensive parts, comprising the bulk of the cost of the cars, are still being imported into the country by these local companies; hence their perpetual status as assemblers and NOT manufacturers.
Used imports are not the evil PAMA makes them out to be. It’s just convenient to do so for their own needs to make expensive cars that only a few in the country can buy and, through which, they can secure their own profits. The local auto industry in Pakistan is a sad lesson and case study in exclusion.
Here is an idea. Since the auto assemblers themselves say that they will not make small cars for the masses. Why doesn’t the government set up an import policy which only allows the import of small cars and SUVs of 1000cc or below at reasonable tax rates. If the affluent can have their fake premium ten-year-old Corollas and Civics and SUVs and the rest, why not address the majority of the buyers as well? Imports must be allowed to cater for the majority of the country who are now suffering because of the constant interference of the local assemblers and PAMA, making cars ever more out of reach for the average citizen. And the best thing, this will in no way affect the business of the local assemblers because it is not their area of business, people will happily pay the tax on those small cars, which would translate to more tax income for the government. Win, Win, Win! .👍
And lastly investor confidence. Don’t you think it’s because of the attitudes of the local assemblers who are not interested in expansion. Only in locking the market and chocking it to death. The past years should have been a wakeup call. The local companies should have launched fully into the export market. Especially the old three with their claimed localization. Yet all they are doing is demanding their handouts and shifting the blame for their own faults onto used car imports.
Time pe kuch kar lyte to aaj yeh din dekhny ko na mil ta… 🤦♂️🤷♂️