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Automakers Warn 25% Sales Tax on Local Cars Will Kill the Industry

The Pakistan Automotive Manufacturers Association (PAMA) said that the recent decision of the Economic Coordination Committee (ECC) to increase the sales tax to 25 percent on locally produced vehicles is like “killing someone dead.”

In a letter to the Caretaker Finance Minister Dr Shamshad Akhtar, PAMA said that ECC on February 14 reportedly approved an increase in the sales tax to 25 percent on locally produced vehicles of 1400 cc and above or priced Rs. 4 million and above.

 

It said that the decision would affect only locally produced passenger cars, increasing their prices in the market that is already marred by galloping inflation and ruining the demand. It is like “killing someone dead”, the letter warned.

 

PAMA said that a five-year comparative chart of production and sales of automobiles produced in the country shows a continued decline in production and the sales. The automobiles are demand-elastic items whose sales would further go down with the increase in prices; hence the increase in the sales tax would be counterproductive, it said.

It added that taxes on locally produced cars have further increased while the taxes on import of used cars since remained unchanged thus making a case of negative protection to locally made cars.

The letter highlighted that the used cars have managed to fill the market vacated by locally produced cars. Previously, the market share of used cars was around 10 percent which has gone up now to 30 percent. Causing loss of foreign exchange and loss of legitimate revenue to the government.

 

The letter said that it is unlikely that the measure would result in additional revenue generation. “We are apprehensive that the measure would eventually result in a drop in the volumes with a consequent drop in the revenues. The measure in question would only be hurting the economy, enhancing negative sentiments for consumers and losing investor confidence in investment in Pakistan,” it added.

PAMA has requested the finance minister to withdraw the increase in sales tax.

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