Government Increases Taxes On Car Imports, Local Manufacturers Maintain their Monopoly

According to revised tax rates, announced this week in a mini-budget, used imported cars and car parts will be taxed at a whole 10 percent higher from now on for all cars with an engine capacity of 1000-1299cc range or higher than that.

Car sales in Pakistan are seeing an all-time high. Local car manufacturers are pouring all they have in trying to meet local demand. Toyota Corollas have been going off the shelves like hotcakes with new buyers having to wait some 3-4 months if they pre-book a Corolla. Suzuki cars have always been selling well and are seeing even better sales thanks to the Punjab Taxi Scheme. The lack of local manufacturers to meet the demand is helping increase car imports as well. Imports have increased two fold and European and Russian automakers have shown interest in entering the Pakistani market. Even Volkswagen expressed interest in entering the Pakistani market.

Does the Government Hate Consumers who Only Want Cheap, Reliable Cars?

With such high consumer interest, it’s going great for local manufacturers and the government is making as much as they can from taxes on both imports and local manufacturers. However, now It seems that the government has decided that everyone except the population should benefit from this.

To this effect, the government has thrown a mini-budget which includes a 5-10% regulatory duty on the import of 61 items, an increase in of 5% in duty for 298 items and a 1% customs duty on almost everything else.

According to Finance Minister Ishaq Dar, the move has been justified on the following grounds:

“Additional revenue measures have been taken to make up for a shortfall of Rs39.8bn in the revenue target for the first quarter of the current financial year.”

What does the Mini-Budget Mean for Car Buyers in Pakistan?

Used imported cars and car parts will be taxed at a whole 10 percent higher from now on for all cars with an engine capacity of 1000-1299cc range or higher than that. The cars will be taxed under the following scheme:

• 800-999cc – PKR 550,000 to PKR 675,000
• 1300-1500cc – PKR 1,950,000
• 1501-1600cc – PKR 2,350,000
• 1601-1800cc – PKR 3,000,000
• Luxury cars will be charged an additional 10% import duty

The recent government move towards increased taxation is not the right way to go about it. Local manufacturers are benefiting from the decreased value of Japanese Yen against US Dollar by 15 percent and increased value of PK Rupee against it by 25 percent. Not only this, but the price of steel is down by 25 percent as well. The price of raw materials is down as a whole and yet the local consumers are not seeing any reduction in prices. It’s the exact opposite and the prices have been increased by local automakers.

Local Car Manufacturers And Their Anti-Consumer Business Practices

The taxation on imports is turning the whole market into a monopoly favourable to local manufacturers who are still unjustifiably increasing prices. The government has been talking about an auto policy for years to increase competition and fight the monopoly to reduce the car prices. So far the government has failed to do so and is trying the exact opposite by eliminating the foreign competition. The imports have been higher than before, but they are still more than four times less than what the local manufacturers produce. The only thing that the local car industry should worry about is the deteriorating quality of their cars and that too with an exorbitant price tag.

At the end of it all, it is the car consumers of Pakistan who will suffer. The consumers will have to choose between higher taxes on car imports and high-profit local manufacturers which can’t meet local demand.