Govt should extend tax relief on cars up to 1,050cc, says think tank

In a bid to make a greater number of vehicles more affordable, the Pakistan Institute of Development Economics (PIDE) has urged the government to extend its tax relief proposed in the Budget for FY 2021-22 to vehicles with engine capacity up to 1050cc.

In the budget proposal FY2021-22, locally assembled vehicles up to engine capacity of 850cc were exempted from Federal Excise Duty, which was previously 2.5%, while the sales tax on the same was reduced from 17 percent to 12.5 percent.

Vehicles including Suzuki Alto (658cc), Bolan (796cc), Ravi (796cc), United Bravo (796cc), Prince Pearl (796cc) will benefit from this move. However, the move came under scrutiny as consumers lamented the lack of choice in the engine segment.

PIDE said that reducing the taxes on smaller vehicles to make them more affordable for the general public is a welcome move, but limiting the relief to vehicles up to 850cc provides a very small range of option to choose from to the general public.

“In addition to the small range of passenger vehicles available in the range to consumers, this also provides an unfair advantage to one manufacturer i.e. Suzuki with three vehicles in the under 850cc category.”

PIDE said that instead of limiting the recently-awarded tax relief for vehicles up to engine capacity of 850cc, the government should expand the scope of this relief.

“This will help bring down prices of all small vehicles being locally assembled, while also extending benefit to multiple manufacturers. This will increase competition in small vehicles manufacturers as consumers will have a greater range of vehicles to choose from as per their budget.”

PIDE said making this change will extend a fairer benefit to the manufacturers while also giving the consumers a wider range of vehicles to choose from. “This increased competition will eventually benefit the automobile industry as well as the general public."