Host: Suneel Munj
Guest: Ali Khizar (Economic Analyst)
Suneel Munj:
Welcome, PakWheelers! Today, we’re joined by renowned economist Ali Khizar to discuss the upcoming budget and what it could mean for Pakistan’s auto sector. Ali, great to have you with us.
Q: What has gone wrong with our auto policy so far?
Ali Khizar:
Our auto policies have lacked consistency. Whenever a new government wants to win public support, it loosens import restrictions on used cars, like allowing 5 or 10-year-old vehicles. This ruins the predictability that manufacturers need. Auto manufacturers often claim they couldn’t perform due to unstable policies, and they’re partly right. The industry grows for a few years, then faces regulatory shocks. It’s a start-stop cycle that benefits no one.
Q: What makes this year’s upcoming budget different?
Ali Khizar:
This time, there’s a serious push for a National Tariff Policy. The plan is to phase out import protection over the next four years. Eventually, the maximum customs duty will be capped at 15% on most goods. Regulatory duties (RDs) and Additional Customs Duties (ACDs) are expected to drop to zero.
Q: What could be the impact of reducing these duties?
Ali Khizar:
If you cut RDs and ACDs while maintaining only a 15% duty on imported goods, local manufacturers will struggle to remain competitive. If someone imports cars at 15% while local manufacturers are assembling at 5%, the cost gap isn’t significant. This could mean death for inefficient manufacturers and consolidation within the market. Only those with higher localisation and better economies of scale may survive.
Q: So, will this make imported cars cheaper?
Ali Khizar:
Yes. For example, the total tax burden on imported cars is currently around 460%. Under the new policy, it could drop to 60–70% over a four-year period. This means that a 7 crore Fortuner could become a 4–5 crore vehicle. But don’t assume this makes all cars affordable—it primarily benefits the upper segment.
Q: Will this put pressure on the country’s dollar reserves?
Ali Khizar:
Definitely, let’s say we import 200,000 vehicles a year, each costing an average of $20,000. That’s $4 billion annually. In comparison, local manufacturing uses fewer dollars due to localised components. This surge in imports could badly strain our already fragile reserves.
Q: Can such a policy be sustainable?
Ali Khizar:
The risk is huge. We’ve seen similar cases before, where policy changes led to short-term booms followed by balance-of-payment crises. Unless backed by a well-managed macroeconomic framework, such reforms could do more harm than good.
Q: What about carbon taxes and petroleum levies?
Ali Khizar:
Yes, confirmed. A petroleum levy of PKR 100/litre is being implemented. Additionally, a 5% carbon tax is expected, particularly on older cars. Even those with vehicles over 4–5 years old could be targeted. This will increase running costs even if initial car prices fall.
Q: Will this help reduce smog and pollution?
Ali Khizar:
While policies like these aim to curb pollution, we see contradictions. For instance, environmental agencies are using Toyota Cross instead of EVs. If the government really wants to promote clean mobility, they must lead by example.
Q: Could this policy affect the overall job market?
Ali Khizar:
Yes. The local auto industry supports approximately 300,000–400,000 jobs, both directly and indirectly. If the industry shrinks due to cheaper imports, we risk massive unemployment not only in manufacturing but also in related sectors, such as auto parts, services, and dealerships.
Q: What’s your view on allowing commercial used car imports?
Ali Khizar:
If done with proper checks, I support commercial imports of used vehicles. But there must be regulations around roadworthiness, safety standards, and documentation. Otherwise, we risk flooding the market with unsafe, accident-prone vehicles.
Q: Is there any example where a similar tariff rationalisation worked?
Ali Khizar:
Yes. Countries like Vietnam, Turkey, and Indonesia implemented similar policies, and over time, their exports increased and trade balance improved. But these countries also had robust governance, logistics, and utilities infrastructure—things Pakistan currently lacks.
Q: Could Pakistan benefit by re-exporting refurbished cars?
Ali Khizar:
In theory, yes. But in practice, Pakistan lacks the ecosystem. Places like Dubai already dominate this space with superior craftsmanship, lower energy costs, zero-rated tax zones, and stable policy environments. Competing with them is not feasible unless we undergo structural reforms.
Q: Is the auto industry rent-seeking or genuinely struggling?
Ali Khizar:
It’s both. There is inefficiency, but there are also systemic obstacles. Taxes, policy uncertainty, energy costs, weak infrastructure—all make it hard for even honest players to thrive. Blaming the industry without fixing the system is short-sighted.
Q: What’s the situation with the BYD plant? Should it still be pursued?
Ali Khizar:
Given the current economic climate and unclear policy landscape, I don’t think BYD should proceed with its plant. If I were BYD, even after ground-breaking, I wouldn’t move forward. The policy flip-flops over the years have discouraged consistent investment in Pakistan’s auto sector. The problem isn’t about intent—it’s about sustainability and trust.
Q: Final thoughts—will this budget help the common man?
Ali Khizar:
Not directly. If anything, luxury vehicles might become cheaper, but entry-level vehicles, such as 660cc cars, are unlikely to see a significant price drop. So the middle class won’t benefit much. The upcoming taxes (carbon tax, petroleum levy) will actually increase ownership costs for many.
Suneel Munj:
Thanks, Ali. That was a deep dive into one of the most debated topics around this year’s budget. It’s clear there are risks, trade-offs, and missed opportunities.
We’ll wait and see what actually gets implemented.
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Until next time, drive safely and stay informed.
