LAHORE: The Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) has voiced apprehension regarding the proposed increase in the sales tax from 18% to 25% on automobiles with an ex-factory price of 40 lakh and above.
In a unified stance, PAAPAM’s leadership, led by Chairman Abdul Rehman Aizaz, Senior Vice Chairman Mumsahd Ali, and Vice Chairman Taufique Sherwani, asserts that the previous escalation of sales tax to 25% on 1400 cc cars, coupled with other tax measures and the devaluation of the Rupee, has already led to a decline in automobile sales to a mere 30% of the levels seen in 2021-22.
This substantial downturn not only burdens the parts manufacturing sector and the associated employment it generates but also results in diminished tax revenue from the sector. PAAPAM underscores the current challenges, including soaring energy prices, a 160% currency devaluation within six years, exceptionally high financing rates, and over 40% taxation on every car sold, which have constrained sales to just 100,000 Cars/SUVs against an installed capacity of 500,000 vehicles.
PAAPAM’s leadership emphasizes that increasing the GST to 25% for small-sized sedans will escalate prices beyond the purchasing power of the country’s middle class. Such a move would not only adversely affect consumers but also lead to reduced tax collection due to anticipated lower sales.
It is noteworthy that automobile production and sales have been on a downward trajectory for the past five years. As automobiles are demand-elastic items, their sales would further decline with price hikes, rendering the GST increase counterproductive.
Experts opine that the Economic Coordination Committee’s decision to raise the general sales tax on locally produced vehicles would result in both a decline in volumes and revenues, as it is improbable that a GST hike would generate additional revenue.
This measure would only negatively impact the economy, exacerbate consumer pessimism, and diminish investor confidence in Pakistan, amid fears of further price increases in locally assembled cars, already plagued by hyperinflation and slowdown.
PAAPAM’s leadership stresses that increasing the GST to 25% for small-sized sedans would surpass the purchasing power of the country’s middle class. Such a move would not only burden consumers but also reduce tax collection due to anticipated lower sales. They urge authorities not to further burden the local industry by raising the GST, emphasizing that this proposal was previously rejected during discussions with industry representatives.
PAAPAM calls for dialogue with the government before making any decisions regarding additional taxes on automobiles.
Copyright Business Recorder, 2024
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