Car sales slowdown amidst economic uncertainty


The purchase of locally-manufactured new cars and imported used cars has slowed down due to the prevailing economic uncertainty in the country. The overall car sales had somewhat recovered in March 2019; however, the future remains unpredictable.

As per media reports, the buying of 1,700cc and above cars dropped after the government’s announcement to withdraw 10% federal excise duty (FED), on vehicles with an engine displacement of 1700cc or above. It was announced by Abdul Razak Dawood, Advisor to the Prime Minister on Commerce, Textile and Industries, that the 10% FED will be withdrawn “within a few weeks”.

A car dealer told a local media outlet that the announcement had an impact on the purchase of 1700cc and above engine displacement cars. It was argued that people now await the implementation of the announcement to withdraw 10% FED before buying the cars. This is because people can save over PKR 3lac on Toyota Corolla Grande and Honda Civic, and even Rs 7lac on SUVs like Toyota Fortuner, only if the FED is removed.

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On the other hand, the import of used cars has also suffered due to the change in policies during the past nine months. According to the latest data compiled by Pakistan Bureau of Statistics, the car imports fell around 42%, from $359.5 million in the first nine months of FY18 to $209 million in the corresponding period of FY19.

The drop occurred due to multiple reasons. The auto industry experienced inconsistent steps on the policy front with the initial ban on car purchase for non-filers. This ban was partially withdrawn in January 2019 when the federal government allowed non-filers to buy cars up to 1,300cc. The ban on non-filers was entirely ended in March 2019.

Rupee devaluation, rising interest rates on auto financing and 10% FED were key factors which fluctuated the overall car pricing and sales.

Another factor in the case of used car imports was SRO(1) 2019. Back in January, the government had introduced SRO 52(1) 2019 in which the Ministry of Commerce revived the condition on import of used cars. As per this restriction, the payment of duties and taxes must only be paid in foreign exchange. These payments are bound to be directly remitted from abroad by the person importing the vehicle.

Last month, we had reported that the used car imports have seen a massive dip by 74% in the month of February 2019, becoming the lowest in the past five years.

With the resignation of Finance Minister Asad Umar and a new economic team in place, we can expect more changes in the policies and taxes for the auto industry.

 

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