Taxes cut on cars: Prices reduced by Rs 229,458

The government announced to reduce cars in Pakistan by Rs 229,458 due to several tax measures in budget 2021.

The car prices in Pakistan are already on the higher side and several tax measures in the budget have helped to reduce car prices.

For vehicles up to 1000cc, the government has removed Federal Excise Duty (FED), and Additional Customs Duty (ACD) on locally manufactured cars to reduce prices in Pakistan.

Automotive Sector is one of the major industrial sectors of the country.

It has the potential to drive the entire economy of the country. Share in LSM is 7.81%.

Each car produced in the country creates employment opportunities for at least five (05) people.

The auto sector not only has dense backward and forward linkages that made it an engine of growth but it also has great potential for export.

The government has therefore introduced measures to increase the production of vehicles to approximately 300,000 (3 Lac) in this fiscal year and up to 500,000 (5 Lac) by 2025.

Even more importantly strong incentives have been created for localization

Affordable Small Cars (Meri Ghari Scheme)

To make small cars financially affordable for the middle class, the following steps have been introduced in the financial budget 2021-22.

Sales Tax has also been reduced. Reduction of duties and taxes on import of small cars (CBUs) to bridge the demand-supply gap

Reduction in Car Prices

ACD and FED on all cars have been reduced.

This Government’s intervention will significantly reduce the prices of all cars.

Manufacturers have promised to pass on the impact of the reduced tax regime to customers immediately.
The prices of cars are expected to be reduced as under: –

 Decrease of Rs 104,458 – Rs 142,388 approximately in cars below 850 cc, Rs 112,118- Rs 186,375 approx. in cars from 1001-1500 cc, more than Rs 169,958 approx. in 1800 cc category and Rs 229,458 approx. in 2000 cc above category.

 Price reduction is expected in each vehicle category being manufactured locally

Localization

The government intends to promote the localization of auto parts.
The purpose is to create employment, promote the downstream industry in the country and save foreign exchange.
The condition of 30% value addition has been introduced on imported raw materials and components to be used for the manufacturing of vehicles in the country
To ensure rapid localization, the government shall update the localized manufacturing of auto parts every six months.

“On Money” issue

The government has introduced the following measures to reduce the issue of “On Money” in a bid to reduce the prices of cars in Pakistan:

 Rs. 50,000 to Rs. 200,000 tax where the first registration is not in the name of the person who booked the vehicle.

 Compulsory payment of KIBOR+3% mark up by manufacturers on delivery beyond 60 days and upfront payment not to exceed 20 % of the invoice value at the time of booking

 Real time trackable online booking and manufacturing status

Safety Measures in Cars

In order to improve and ensure road safety, manufacturers will meet international safety measures such as brakes, steering, tyres, lightening, safety belts, airbags, and collision. Furthermore, the government will implement 17 such shortlisted regulations in phases over a period of three years.

Export Promotion

Exports targets for the manufacturers will be up to 10 % of the import value by the end of five years of this proposed policy.

Electric Vehicles

Higher number of EVs in the local market would encourage auto companies to invest in infrastructure in Pakistan to facilitate EVs.
Incentives allowed to increase the number of imports of EVs:

 Customs Duty (CD) on Specific Parts for electric vehicles to attract 1 %

 10% CD on import of CBUs of EVs

Khusro Bakhtiar, Federal Minister for Industry and Production, and Fawad Chaudhry, Federal Minister for Information, spoke at a press conference on the measures the government has put in place to cut car taxes.

Minister of industries stated that local automobile makers will announce the price reductions through advertisement on Thursday.

Industries Minister went on to say that the Federal Board of Revenue (FBR) will notify a cut in taxes on automobiles in the next few days.

He stated that raising the consumption of local vehicles would aid in the achievement of the country’s aim of 6 percent growth while also creating work for 375 people in the local community.

He also stated that there will be opportunities, and he went on to describe the main aspects of the tax incentives for the auto sector in the budget.

New Proposed Auto Policy to reduce prices in Pakistan

The Federal Minister for Industries and Production stated that if local auto manufacturing companies do not lower their prices as a result of tax measures announced in the federal budget, the government will allow the import of vehicles under a new auto policy that is due in August of this year.

‘As long as local automakers do not cut their earnings, the government would allow for the import of vehicles and will lower the taxes on automobile imports under the new proposed auto policy, according to the Minister.

He asserted that tax reductions will contribute to the reduction of the pricing of locally built automobiles.

Price reductions for small automobiles will range from Rs 105,000 to Rs 186,000, according to him, while the price of an entry-level 660cc vehicle will be Rs 105,000.

Meanwhile, the manufacturers will cut the price of a 1000 cc car by Rs 142,000, the price of a 1200 cc car by Rs 186,000, the price of a 1300 cc Toyota Rs 125,000, and the price of a Honda at the same level amount.

The features of the New Proposed Auto Policy

In August of this year, the government intends to adopt a new automobile policy.

In elaborating on the key aspects of the new auto policy, the Federal Minister stated that government may increase the advance banking of automobiles to 20 percent for new car manufacturers to simplify the procedure of leasing vehicles in the coming days.

Own money to reduce car prices in Pakistan

The Federal Minister stated that the vehicle will be on-banking, banking in the name of the owner, and if ownership changes within two months, there will be additional registration charges ranging from Rs 50,000 to Rs 200,000.

If the own money does not diminish, government will impose a penalty of up to 10% of the whole worth of the car under the new auto policy, according to the minister.

According to the Federal Minister for Industry and Production, overall car production was 164,000 last year, but total vehicle production will climb to 300,000 units next year, and total vehicle production will increase to 500,000 units by the fiscal year 2023-24 as local automakers.

He also stated that exporting vehicles to the international market is not practicable because domestic production is not up to 500,000 units.

The rise in automobile production would employ 300,000 people, and the output of motorbikes will likely expand from 2.6 million to 3 million, employing 75,000 people, he added.

In response to a question, the Federal Minister stated that there is a problem with under-invoicing at a recently constructed car plant.

In response to another query, the federal minister stated that the new policy will also examine the rates of taxes and levies on spare parts every six months. The aim is to reduce the prices of cars in Pakistan.

The government will make every effort to guarantee that the reductions in tax and duty rates announced in the federal budget benefit the general consumer, while car manufacturers will also decrease their earnings so that consumers may purchase cheaper vehicles. He stated that Prime Minister Imran Khan is the crucial figure in the impending Kashmir elections, which the Chairman of the PTI will not attend as Prime Minister.

Auto Industry Appreciates Auto Policy 21-26

Commenting on the newly announced auto policy, Chairman PAMA, Ali Asghar Jamali said, “I would like to strongly appreciate the present Government for a very progressive Auto and Hybrid Electric Vehicle Policy.

Subsequently, the policy also addresses the Prime Minister’s vision for promoting environmentally friendly technologies by promoting Hybrid Electric Vehicles. Additionally, the industry is excited to see the announced policy and many players would be unveiling their investment plans to introduce locally produced Hybrid Electric Vehicles in Pakistan. I am confident that all stakeholders including Customers, Industry, Part Makers and Government shall reap the benefits of new policy equitably.”