Taxation reforms to generate additional Rs400b
The taxation reforms in the pipeline are aimed at generating additional revenue of Rs400 billion besides providing incentives to the corporate sector including manufacturing sector which has posted a negative growth during 2009. However, in the current situation the automobile sales have shown some improvement in the month of July and August needed special relief in the face of ever increasing exchange rate depreciation which is adding to the cost of production and eroding the profit margins of the automobile companies.
Despite all efforts for improving deletion level in Pakistan the import of CBUs as well as CKDs were still the principal part of the automobile sector which adds to the cost of production due to appreciating of Japanese yen against dollar and depreciation of rupee against dollar which have a severe fall out effect in the economics of car manufacturing in Pakistan.
It is learnt that the taxation reforms in the areas including short term market-related capital gains and income tax for stock brokers, introduction of VAT mode in sales tax and withholding system for the agriculture income tax.
Although the car sales have shown sign of improvement yet in fact it’s a seasonal factor as every year the car sales during the month of Ramazan go up because a large number of overseas Pakistani purchase cars for temporary use during their stay in Pakistan.
Actually the sales volume of used car is much higher than the new ones because visiting overseas Pakistanis prefer to involve minimum amount in buying a car for their temporary stay in Pakistan. Hence sales value and volume of the used cars has also shown a robust growth during month of Ramazan. The road side car vendors also organize weekly “Car Bazar” during before Eid-ul- Fitr in different part of Karachi during the month of Ramazan.
Generally speaking the domestic passenger car sales are showing continuous sign of improvement on monthly basis during financial year 2009. It looks that new fiscal year has started on an optimistic note for domestic auto industry. As per the latest figures released by PAMA for the month of August 2009, car sales unveiled an increase of 11% on Mo-M basis to 8,441 units as against 7,614 units in the previous month.
The situation appears even more buoyant on Y-o-Y basis with strong improvement of 31% in passenger car sales. However, because of lower base in the similar month of last year, the numbers portray massive growth in the month.
It is interesting to note that during the first 3 months of financial year 2009, car sales numbers were unusually lower due to phase-out of Corolla’s previous model. In the first quarter of financial year 2009 i.e. Jul –Sept), Corolla sales averaged at 640 units as against 2,760 units in the rest of the period of the fiscal 2009. The base-effect will be eminent in one more month of current fiscal year. Moreover, during second month of financial year 2010, passenger car sales stood at 16,055 units as against 11,177 units in the similar period of the last year –indicating a growth of 44%.
Meanwhile the persistent economic slowdown, limited avenues for auto leasing and record domestic inflation had hit hard the economy class consumers. That said, lower-end segment’s passenger cars were most affected by economic woes. However, with the recovery in domestic economy along with price cuts by Pakistan Suzuki Motors dominant player in 850cc segment with 85% market share, the demand for low-end cars has also shown some improvement. In addition to this, high-end segment cars are becoming less affordable for mass market.
In August 2009, 850cc segment’s unit sales increased by 38% to 2,362 units as against 1,708 units in the preceding month, while unit sales of 1300cc & above segment dropped by 1% to 4,326 units. Pak Suzuki is to remain the major beneficiary as it is dominant player in the Economy-class segment. On M-o-M basis, Pak Suzuki is showing consistent recovery in its sales as the company has made sequential price cuts across the board. In August 2009, car sales of Suzuki Motors surged by 26% to 3,758 units as against 3,002 units in the preceding month.
In order to recapture lost market share and to achieve economies of scale, the company cut its prices (2-6%) in April 09 on most of the categories. Further, in June 2009, the company has completely passed on the impact of the removal of 5% FED on cars above 850cc.
Later on, in July 09, Pakistan Suzuki Motors again reduced its prices of its 850cc & below segment cars (approx 70% share in total sales). With recovering its sales, market share of Pakistan Suzuki Motors has improved to 45% during August 2009 versus 39% in July 2009.
However, on yearly comparison, in August 2009, sales of Pak Suzuki posted a decline of 8%, while its market share shrank to 45% versus 64% in same month of FY09. Marginal increase witnessed in Indus volumes while Honda cars sales dropped Indus Motor, a market leader, depicted a marginal increase of 3% in its passenger car sales in the month of August 2009 at 3,551 units as compared to 3,455 units in July 2009.
(Courtesy: Amanullah Khan/pakobserver)