Pakistan auto industry fears 30% dip in sales after tax hike on new cars

Amid economic crisis that looms large o the country, Pakistan's auto industry is facing a big slump in car sales. According to reports, Pakistan could see a drop of 30 percent in sales of cars during this financial year. This is seen as a direct fallout of increased tax on new vehicles and policies by the new government which is battling cash crunch. Carmakers in Pakistan anticipate that the new tax rule, coupled with rising fuel prices and Pakistan State Bank's restrictions imported auto parts will also spiral car prices.

The Pakistan government has increased withholding tax on filers and non-filers and imposed one per cent capital value tax (CVT) on vehicles which have bigger than 1.3-litre engines. Rules for auto financing and increased rates of interest on auto loans are also likely to contribute in drop of sales.

A report shared by Pakistan's newspaper Dawn, car companies may increase prices of their vehicles amid weakening of Pakistani Rupee and rising costs imported auto parts. The report claims that a weakening currency coupled with high freight rates could see price hikes in vehicles after Eid.

Pakistan has also recently slapped a ban on imported cars as part of its plans to revive the economy. The ban, which was announced by Prime Minister Shehbaz Sharif soon after taking oath, is aimed to help Pakistan to save 'precious foreign exchange'.

The report says that Pakistan Suzuki is the latest carmaker to stop taking bookings for its vehicles from July 1. Earlier, Indus Motor Company and Lucky Motor Corporation Limited had done the same in May. The decisions were taken after the State Bank of Pakistan disallowed opening of letters of credit for imported auto parts and accessories from May 20.

Indus Motor Company, one of the top carmakers in Pakistan, gets around 26 per cent of its revenue from auto financing. Pakistan Suzuki earns 35 per cent from consumer financing. However, Suzuki decided not to increase prices of Kia cars in fear of a 30 percent drop in sales.

After the government decided to hike taxes on new cars, two Kia Stonic models now have a one CVT for PKR 44,250 to PKR 47,250, three Sportage models between PKR 53,000 and PKR 64,990, and three Sorento models between PKR 68,360 and PKR 74,990.

Honda Atlas Cars Limited said the one per cent CVT on the City 1.5 ranges between PKR 35,890 and PKR 38,990 while on two modes of the Honda BR-V, the CVT hovers between PKR 42,490 and PKR 42,740. The one per cent CVT on six Honda Civic models cost between PKR 55,490 and PKR 66,740.

Dealers have also been instructed to charge PKR 10,000 for Alto, Bolan and Ravi from income tax filers. Those looking to buy a WagonR or Cultus will need to pay PKR 20,000 instead of PKR 15,000, while Swift buyers will pay PKR 25,000.