As bar on non-filers lifted, car sales may go up

Investors cheer the news; stocks of carmakers hit the upper lock

Salman Siddiqui March 08, 2019
Representational image. PHOTO: REUTERS

KARACHI: The three existing Japanese car manufacturers in Pakistan and new entrants in the industry have heaved a sigh of relief after the government withdrew the restriction on new vehicle purchase by non-filers of tax returns.

One of the three carmakers said the bar on non-filers had badly hit its sales in first seven months of the current fiscal year 2018-19 and the removal of the condition would help it to return to the growth path.

“The government’s decision will help the company recover the lost 35% sales in the next three to four months,” Pak Suzuki Motor Company spokesman Shafiq Ahmad Shaikh told The Express Tribune.

“We really appreciate it as this is an encouraging step; the lifting of the ban on non-filers will definitely increase sales, growth and job opportunities in the auto industry,” he added. The previous Pakistan Muslim League-Nawaz (PML-N) government imposed the condition from July 1, 2018 through the budget for fiscal year 2018-19. It led to a drop of around 35% in sales of Pak Suzuki Motor Company alone in the current financial year so far, he said.

Later in January 2019, the Pakistan Tehreek-e-Insaf (PTI) government, which came to power in August 2018 - eased the condition, permitting non-filers of tax returns to buy up to 1,300cc new cars in the second mini-budget.

The Finance Supplementary (Second Amendment) Bill 2019, which was endorsed by the National Assembly on Wednesday, completely withdrew the restriction, allowing non-filers to buy new vehicles of any engine capacity. However, the relief is only applicable to locally manufactured vehicles.

After the announcement of the relief, share prices of the three Japanese carmakers hit their upper limits of 5% at the Pakistan Stock Exchange on Thursday.

“Stocks of Honda Atlas Cars, Indus Motor and Pak Suzuki Motor Company closed at their respective upper caps as investors reacted positively to the removal of law barring non-filers from purchasing new motor vehicles,” Topline Securities said in its report.

“We believe this latest amendment will be positive for the auto sector. However, this step, we believe, will counter government’s continued efforts to bring more people in the tax net,” it said.

Approximately 25% of auto sales in Pakistan were in the 1,300cc or above category, it estimated.

The new development would particularly be positive for Honda Atlas Cars followed by Indus Motor and Pak Suzuki Motor Company, it said.

“Honda Atlas Cars sells all of its vehicles in categories above 1,300cc engine capacity while Indus Motor and Pak Suzuki sell approximately 50% and 3% respectively in 1,300cc and above engine categories,” it said.

FED to impact negatively

Moreover, in January, while presenting the economic reforms package, a 10% federal excise duty (FED) was imposed on 1,800cc and above engine capacity cars, which was almost neutral for the sector as approximately 4% of its sales were in 1,800cc or above engine capacity categories.

“However, now the 10% FED has been imposed on cars of 1,700cc and above engine capacities, which will be negative for the sector,” it said.

“This additional measure will have the most impact on Honda, which sells almost 45% of its cars, ie Civic, in the 1,700cc and above categories. However, the increase in prices of Civic will result in likely sales push for the company’s City, which comes in 1,300cc and 1,500cc capacities. Also, the introduction of a lower engine capacity Civic cannot be ruled out.”

According to Topline Securities, around 24% of Indus Motor sales are in 1,700cc and above categories, which will be affected. However, Indus already has a 1,600cc variant for its top-of-the-line Toyota model, which it is expected to market aggressively.

“We believe that these additional amendments will be net negative for Honda and will be positive for Indus and Pak Suzuki Motor,” the brokerage house said.

Published in The Express Tribune, March 8th, 2019.

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