The previous government under PML-N put restrictions on non-filers from buying or importing the vehicles in order to encourage them to file their tax returns. The restriction also included the ban on buying any property that is worth over Rs 5 million.
After the decision came into effect on July 1, it has been observed that the delivery period for vehicles has significantly come down by two-thirds. The reason behind these rather quick deliveries is due to the fact that most of the buyers are not tax filers. Therefore, auto companies in Pakistan have stopped taking orders from them.
For now, tax filers are benefiting from this phenomenon. As for the auto industry, they fear that the number of orders for new vehicles will continue to come down significantly.
Delivery Period and Auto Industry
For Pak Suzuki, the delivery period for its WagonR models has come down to four from five months previously. The rest of the Suzuki models that include Cultus, Ravi, and Bolan are being delivered in over 90 days, a dealer told.
The reason behind WagonR’s rather long delivery time is that Suzuki stopped its bookings earlier this year. It was due to import restrictions put by the government to curb the trade deficit. As a result, the demand orders for WagonR kept on accumulating.
An official in the auto industry, however, hopes that the government will lift the ban soon. He added that the sales will be reduced massively which will be reflected in the August’s financial report. He told:
We are hoping that this restriction (on non-filers) is withdrawn by the new government. It’s bizarre that a non-filer can buy property worth Rs5 million but can’t buy a car of Rs1 million.
Another official of the Toyota Eastern Motors, Iqbal Shah, talking about the delivery period, told:
The delivery period was touching January (six to seven months) but the non-filer issue has forced it to come down to October. The process of issuing refunds to customers who don’t want to take delivery has also started.
The delivery period for Revo and Fortuner currently stands at one month which was around three to four months previously.
Zeeshan Afzal of Insight Securities shed some light on how the reduced delivery period will affect the companies’ bargaining power. He said:
If the delivery period comes down, it will reduce companies’ pricing power. They will not be able to increase the price when their cost goes up. It will certainly impact their profitability.
Another reason why the profits might drop due to the quick delivery time is that the companies won’t be able to earn extra interest on the money. Previously, the auto assemblers kept the money for a longer period of time, resulting in increased earnings for them.