Since last week, there is a sheer excitement in the local auto industry and market due to the new Auto Policy (2021-2026), as the government has announced a 2.5% Federal Excise Duty (FED) cut on all cars. Along with that, the Sales Tax on cars up to 1000cc is decreased to 12.5% from 17%, so, it means the car prices should come down. Right? But it has not happened as yet.
We are saying this because the car companies hike the prices over just a hint of dollar prices increase or new government taxes. However, it doesn’t seem to be the case in reducing the car rates.
Tax Reduction in Budget:
During his budget speech, Federal Finance Minister Shaukat Tarin announced the Sales Tax reduction to 12.5% and FED removal for 850cc cars. It was announced three weeks ago, but there is no announcement or hint of price decrease by the manufacturers. This tax reduction was later extended to 1000cc vehicles, but still no statement.. Last Friday, the Federal Board of Revenue (FBR) explained in Finance Act, 2021 that a 2.5% cut has been applied to all cars categories. And, Still, no announcement.
Confusion in Market over Car Prices:
Since last week, two price reduction notifications have circulated on social media. First, it was by Honda Atlas and then KIA Motors Pakistan. Both notices announced a decrease in car prices. The consumers got excited; however, our research revealed that the companies did not issue those notices.
Both Honda and KIA officials denied making such an announcement. As per these officials, the company managements are holding discussions over these tax reductions, and decreased prices would be announced during or by the end of this week. So, a bit more weight. On the other hand, no government minister/official has made a clear announcement about the Auto Policy; hence, everything is either ‘expected’ or ‘tentative.’ for now.
When is the Confusion Expected to End?
As per media reports, the federal cabinet will discuss these tax reduction proposals on July 6th (Tuesday). The reports suggested that the cabinet will discuss different taxes, including Regulatory Duty (RD) and Additional Customs Duty (ACD). In case of approval, the cut in car prices will be final and official. That is why, it is expected that automakers will announce new prices on Wednesday.
So, our suggestion is to wait for just two more days. And hopefully, everything will become clear.
