The announcement and approval of the 2021-22 budget has sparked debates among car enthusiasts, analysts, and casual car buyers for good reason as the government has announced certain reliefs for the local auto industry that could significantly lower the prices of cars in Pakistan.
Due to the incentives provided to the new car companies under the Automotive Development Policy (ADP) 2016-21, the car market now has several new and intriguing products that have created a more competitive environment.
It has been observed that most of the new entrants are compact crossover SUVs and compact sedans, all costing over Rs. 2 million each, and many are for well over Rs. 3.5 million, putting them out of the reach of a good chunk of local car buyers.
Therefore, as a part of the upcoming auto policy, the government has decided to offer more incentives and benefits to smaller cars with an engine displacement of 1000cc and below. It has also decided to offer several benefits for Electric Vehicles (EVs) to promote the use of environment-friendly modes of transportation.
Here are some of the noteworthy developments that the new budget entails:
Given below are the concessions that the government has offered majorly to facilitate the local manufacturing and assembly of vehicles.
The Additional Customs Duty (ACD) on the CKD kits of all vehicles has reportedly been brought down from 7 percent to 2 percent. Furthermore, the FED has been lessened by 2.5 percent for all passenger vehicles which is yet another promising step.
- For 660cc to 1000cc vehicles, the FED has gone down from 2.5 percent to 0 percent.
- For 1001cc to 2000cc vehicles, the FED has gone down from 5.0 percent to 2.5 percent.
- For 2001cc to 3500cc vehicles, the FED has gone down from 7.5 percent to 5 percent.
- The government has decided to decrease the general sales tax (GST) rate from 17 percent to 12.5 percent, but this is only applicable to locally assembled vehicles with an engine capacity of up to 1000cc.
- The Federal Excise Duty (FED), which was previously 2.5 percent, has now been completely abolished in the manufacturing of 1000cc vehicles.
- Value Added Tax (VAT) on the imports of Completely Knocked Down (CKD) kits for the 1000cc vehicles has also been removed.
- The government has decided to exempt the imports of the Completely Built-up Units (CBUs) of vehicles with engine displacements of up to 1000cc from customs duty and regulatory duty in order to support the segment.
- It bears mentioning that, unlike the concessions for the EV segment, the concessions for this particular segment are likely to be changed in the next fiscal year, as they are not yet a part of a long-term policy.
- The government has decided to reduce the GST rate on locally assembled EVs from 17 percent to 1 percent in a bid to promote environment-friendly vehicles. This is only available for passenger vehicles with a battery pack of up to 50 kW and light commercial vehicles with a battery pack of up to 15o kW.
- The FED has never been applicable to EVs and will remain the same in the current budget.
- VAT on the import of CKD kits for EVs has been abolished.
- Only one percent tax will be incurred on the import of EV parts for manufacturers.
- The duty on the imports of charging equipment will be one percent.
- Registration fee and motor vehicle tax on 2-3 wheeled EVs and Heavy commercial EVs have been abolished
- The reliefs offered for the Hybrid Electric Vehicle (HEV) and Plugin Hybrid Electric Vehicle (PHEV) segment are as follows:
- 8.5 percent GST for CBU vehicles up to 1800cc
- 12.75 percent GST on CBU vehicles between 1801cc and 2500cc
- 3 percent Customs Duty on the CKD components of PHEVs while 4 percent Customs Duty on those of the HEVs.
- For the CBU units of 2-3 wheeler EVs and heavy commercial EVs, the aforementioned concessions shall remain valid till June 30, 2025.
- For the locally assembled 4-wheeled EVs with a battery pack of up to 50 kW and locally assembled commercial vehicles with a battery pack of up to 150 kW, the concessions shall remain available till June 30, 2026.
- The Punjab Government has granted a discount of up to 5% of the motor vehicles tax being paid under the Punjab Motor Vehicle Taxation Act (PMVTA) 1958. The discount has been provided for the EVs only to promote their use within the region.
- In Punjab, a 10 percent rebate in the amount of total annual tax will be provided in the first quarter.
- The Khyber Pukhtunkhwa (KPK) Government has announced the reduction of the registration fee of vehicles up to 2500CC to just Rs. 1.
- Provincial Finance Minister of KPK Taimoor Saleem Jhagra has announced that the re-registration of vehicles in the province shall be done free of cost.
- There are also reports that the government is planning to launch a financing scheme for small cars with a reduced mark-up rate of 5-6%.
The Way Forward
These highlights of the 2021-22 budget indicate that smaller vehicles and EVs are being positioned to become more popular among car buyers through possible price reductions. However, these are just indicators of where the automotive industry is headed.
The Automotive Industry Development and Export Plan (AIDEP) 2021-26 and the new EV policy are just days away from being enacted, and it appears as if the government is aiming to create a solid market for small and environment-friendly vehicles by encouraging the new entrants to manufacture such vehicles in Pakistan.
It is believed that the government is planning to heavily incentivize the local manufacturing of vehicles from the ground up, for which it is reportedly planning to open up avenues for parts manufacturers to facilitate the localization of parts besides more reductions in the operational costs for automakers.
These measures are being taken to strengthen the automotive industry and provide job opportunities for the general public, and are a ray of hope regarding much-needed improvements and convenience.