Govt takes decision to deal with 'on money' challenge: Additional WHT hikes car prices

ISLAMABAD: The federal government has reportedly decided to increase prices of locally-assembled cars by up to Rs 200,000 per unit by imposing additional withholding tax (WHT), as a deterrent to "on money".

According to a summary seen by Business Recorder, the Ministry of Industries and Production has claimed that unnecessarily long delivery time for vehicles by manufacturers is a usual complaint. The system is exploited which results in additional payment known as "On Money" by the buyers. In order to discourage the practice of "on money" MoI&P has proposed that additional Withholding Income Tax may be proposed on persons who buy locally-manufactured cars from the OEMs and subsequently sell these within 90 days of delivery of vehicles.

According to sources, MoI&P has proposed additional Withholding Tax of Rs 50,000 on up to engine capacity of 1000 cc, Rs 100,000 on up to 2000cc and Rs 200,000 on above 2000 cc.

At a recent meeting of the Cabinet, Prime Minister and other cabinet members raised the issue of "on money" being charged on the locally manufactured cars. The Cabinet members were of the view that the policy to import cars must be reviewed as the protection had allowed the local assemblers to exploit the consumers. Minister for Industries and Production, Hammad Azhar, explained that the car industry had a difficult time a few months ago due to Covid-19 situation and the pent-up demand had resulted in resurfacing of the "on-money" phenomenon. The situation would normalize as most of the manufactures were ramping up production.

The sources maintained that individuals interested in EVs(2-3 Wheelers and HCVs) may be facilitated through a policy intervention which could not be covered in the Electrical Vehicles policy (2-3 Wheelers and HCVs) approved by ECC in its meeting held on June 10, 2020.

The waiver of Additional Custom Duty (ACD) and Value Added Tax (VAT) on imports for EV (2-3 Wheelers and Heavy Commercial Vehicles), in CBU condition, is proposed till 30 June 2025.

Federal government has already approved Electrical Vehicles Policy (2-3 Wheelers and HCVs). However, the Electrical Vehicles Policy (four wheelers) took time to be finalized due to its inherent complexities and long consultative process with existing Original Equipment Manufacturers (OEMs). Electrical vehicles technology is at a formative stage and comparatively expensive viz-a-viz traditional fuel vehicles. Governments throughout the world are trying to make this technology affordable through different financial and fiscal incentives including disbursement of direct financial subsidy.

MoI&P has proposed that different fiscal and financial incentives may be provided to promote import, usage and manufacturing of electrical vehicles and its related infrastructure.

The inter-ministerial committee constituted by Federal Cabinet has now finalized the proposals with regard to EV Policy (four wheelers). The proposed fiscal incentives will remain in force till June 30, 2026.

Copyright Business Recorder, 2020