LAHORE: Withdrawal of all counterproductive duties and taxes that increase the price of a vehicle is a long-term sustainable solution to grow the auto industry in Pakistan which will make automobiles more accessible, increase sales and lead to overall economic growth.
An automobile expert and CEO of Changan Master Motors, Danial Malik told Business Recorder here on Thursday that the government had imposed Federal Excise Duty (FED) in the previous budget ranging from 2.5 to 7.5 percent. In addition, the government had increased the additional customs duty from 2 to 7 percent on vehicles which highly impacted not only the vehicle prices, but also the very viability of new investors who had put up assembly plants in Pakistan.
In the Auto Policy 2016-21, the government had clearly committed to new entrants that they would not change or pass any new regulation that would adversely affect investments during the policy period. The fixed duty regime for used CBU cars was misused and as a result used CBU vehicles started landing in the market which resulted in a substantial amount of foreign exchange being sent abroad by unofficial channels and TT (telegraphic transaction), he said.
These policy changes coupled with the overall economic environment stressed cash flows for automakers. The rupee devaluation coupled with the increase in customs duty and imposition of FED resulted in more expensive vehicles for customers. As a result, sales have been decreased leading to lowered margins and increased losses for industry players leading to unemployment and lower direct tax revenues for the government. Further, the imposition of 3 percent additional sales tax badly impacted the liquidity of the auto sector, he added.
He was of the view that focus should be on the growing automobile industry in the federal budget as the government should ensure the Federal Excise Duty (FED) and the additional customs duty be removed. The additional sales tax of 3 percent that is a bit of a hurdle should also be removed.
Likewise, the minimum turnover tax should also be decreased from 1.5 to 0.5 percent for automobile manufacturers, vendors, and dealers. Moreover, the imports of the used CBU vehicles/cars should also be discouraged further by increasing the dutiable value and rates as well as limiting the age to a maximum of three years. New entrants in the automobile market should be promoted in line with 'Make in Pakistan' as they are not only adding value to the local automobile industry but also bringing in new choices for consumers.
These steps will not only help to improve the financial condition of the local automobile industry, but they will also lead to generating long-term growth of the industry that will eventually help the government to collect the direct taxation in return.
The auto sector, already reeling under immense pressure due to the sudden increase in existing taxes and imposition of new ones in the budget of the outgoing fiscal year 2019-2020, went into a further quagmire, with plant shutdowns amid the lockdown.
The automotive industry in Pakistan is one of the fastest-growing in the country, accounting for 4 percent of Pakistan's GDP, and contributing $350 million to the national exchequer.
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