Pakistan's automobile sector demands tax reduction

Laments Covid-19 outbreak has dealt blow to the sector

Usman Hanif June 17, 2020

KARACHI: The automobile sector, which is struggling to restore its activities amid the spread of Covid-19, has requested the government to slash taxes in the Finance Bill 2020.

“The decline in the country’s automobile sector began in July last year when the government announced that non-filers of tax return can register only one vehicle against their CNIC,” said Pakistan Association of Automotive Parts and Accessories Manufacturers’ (Paapam) former chairman Mashood Ali Khan.

“After that, we were burdened with additional customs duty of 7-11% and federal excise duty of up to 7.5%.”

In September and October 2019, the rupee depreciated against the US dollar, which struck the automobile sector adversely. Paapam ex-chairman pointed out that the association had hoped that 2020 would be a year of revival of automobile demand and data of January and February was also encouraging. However, the numbers were still lower compared to sales figures for the corresponding months of previous year.

“Then, we pinned our hopes on new vehicle models but the coronavirus outbreak resulted in zero car sales in April 2020,” he said.

According to Khan, auto manufacturers in Pakistan have produced a mere 89,284 cars so far in the current fiscal year compared to 196,415 units in the same period of previous year.

He stressed that the drop in production raised many questions because a few years ago, Pakistani manufacturers produced around 250,000 cars annually and aimed to hit the 500,000 mark.

“Instead of going up, we have gone down in production,” he lamented. “Now, we expect the government to provide relief through tax concessions.”

“At present, 18% sales tax is levied on cars. If the government cuts it down to single digit, it will give a boost to the entire automobile sector and enhance government earnings as well,” he emphasised.

Paapam former chairman voiced fear that if sales tax was left at the current level, the automobile industry would face further devastation and government’s revenue from the sector would also take a hit.

Pakistan’s automobile industry contributes 2.8% to the country’s gross domestic product (GDP) and adds Rs30 billion to the national exchequer in the form of taxes and duties, according to Khan.

The sector is the third largest taxpayer after the oil and gas industry and telecommunication. “Executives from other industries like textile and food used to buy cars, however, they have discontinued purchases since all sectors have been hit by Covid-19 and there is virtually no demand,” he said.

“The automobile industry of many countries is suffering, including India, but their government is giving incentives while our government is not.”

Published in The Express Tribune, June 17th, 2020.

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