Here’s how Budget 2019-20 will impact Automobile Industry of Pakistan

The first federal budget of the government of Tehreek-e-Insaf (PTI) is unveiled in the National Assembly which is a combination of good and bad news for the automobile sector of the country.

The main highlight of the federal budget 2019-20 as far as the automobile sector is concerned, has been the expansion of the scope of Federal Excise Duty (FED) on different categories of locally manufactured/assembled cars. The proposed FED in accordance with each category is mentioned below.

• 2.5% FED to be imposed on cars up to 1000 cc engine displacement
• 5% FED to be charged on cars between 1001 cc and 2000 cc engine displacement
• 7.5% FED on high-end cars i.e. 2001 cc and above

Previously, the government had imposed 10% FED on locally manufactured cars of 1700 cc engine displacement and above through the Finance Supplementary Bill 2019. It was also considered that the government is looking to withdraw this 10% FED in its first budget but things have gone differently. The proposed imposition of FED has only expanded the scope of taxation by bringing all the categories of cars under some amount of duty. Note here that the cars between 1700 cc and 2000 cc will now be charged with 5% FED rather than the old 10% FED. Moreover, 10% FED on cars over 2000 cc will also be reduced to 7.5% according to the latest proposed duty. It means that all the potential buyers of cars over 1700 cc will be benefited from this proposed percentage in budget 2019-20. However, the consumers of cars ranging between 660 cc and 1699 cc will have to bear the additional duty charges which never existed before. To sum it up, it’s a mixed pack of good news for the rich and bad for a large proportion of the population, to say the least.

It’s also important to know here that the prices of all the locally manufactured cars will undergo a notable change. Let’s have a look at what could be the possible change in the prices of cars of all categories.

The above table shows the expected increase and decrease in prices of different categories of cars. It is worthy to mention here that if this proposed FED is approved from the National Assembly then these prices will be applicable on all cars from 1^st July 2019. It suggests that the sales trend of all cars ranging between 660 cc and 1700 cc category will rise in the month of June as if the FED is approved the prices for the said vehicles will go up in July. On the contrary, the sale of vehicles above 1700 cc engine displacement category in June is likely to plunge due to the drop in FED in the coming month. The launch of the all-new 660 cc Suzuki Alto is just a few days away and the consumers in Pakistan have a golden opportunity to grab their hatchback before the proposed FED is imposed.

The prices of cars under 1699 cc category will definitely see a rise by all the auto manufacturers because there was no FED on these cars previously. As the FED on 1700 cc cars and above has decreased, it would be interesting to see if the automakers decrease the prices of these cars in the coming days or. Cars including Honda Civic 1.8L, Toyota Corolla Grande were previously available with a 10% FED which will be 5% according to the proposed rates. Similarly, the FED on Toyota Fortuner will now be 7.5% instead of the flat 10%. We will have to wait and see the development in this regard.

In Pakistan, most of the sale of vehicles is seen under 1700 cc category which means that the proposed FED is going to affect more people instead of providing relief to a handful of buyers above 1700 cc vehicles. This is perhaps why Asad Umar while addressing a budget session in the National Assembly opposed the imposition of 2.5% FED, including the proposed duty on Suzuki Alto.

As we mentioned before, the government has just expanded the scope of Federal Excise Duty by covering all the categories. What are your thoughts on this proposed implementation of FED on all type of locally manufactured vehicles? We are particularly interested in your thoughts if you are a buyer of a car under 1700 cc engine displacement. This is a developing story so stay tuned to PakWheels for the latest updates.