On June 11th, the federal government announced Fiscal Budget 2021-22. May for the first time, the prices of cars got cheaper in an annual budget. During his speech, Federal Finance Minister Shaukat Tarin announced that the government has ended Federal Excise Duty (FED) for cars under 850cc, while Sales Tax on these have been reduced to 12.5% from 17%. And this is really a great news, especially for middle class families.
When it Will Get Cheap for Consumers?
So, a lot of you have asked us when the prices will reduce for the buyers? And the answer is from July 1st, 2021. The budget has been presented, now it will be debated in National Assembly, and then it will be passed and implemented from the start of next month. Henceforth, the new prices will be applicable from July 1st.
Meanwhile, the consumers, who will receive cars during this month, will have to pay the current price. Furthermore, if the vehicle’s invoice has been issued, then the buyer would have to pay the current price. There is no way around it.
A Great Step, But Needs Govt Vigilance:
This indeed is an excellent step by the government as such policies are rare in Pakistan. However, the government needs to be vigilant because the consumers may not get benefit from this policy in the long run. And we are saying this because the car companies can gradually increase their base prices to reach the current rate. Let us explain it with an example.
Let’s assume the previous price of a car was Rs117 (Rs100 base price + Rs17 taxes), and after-tax reduction, the price reaches Rs110 (Rs100 base price +Rs10 taxes). It means the base price is the same, hence, no effect on the car manufacturer. But the company knows that the consumer can buy the car at the price tag of Rs117, so with time, it can increase the base price and bring it back to Rs117. In short, tax reduction benefits may not reach consumers in the long run; hence, the government needs to keep a close eye on it.
