Tax relief to slash car prices by up to Rs229,000

Minister says auto manufacturers will announce reduction through advertisements

Zafar Bhutta July 08, 2021


The government has once again reiterated its commitment to bringing down prices of vehicles as it has given tax relief to the auto sector in the budget for fiscal year 2021-22, which will slash car prices by up to Rs229,458.

The automotive sector is one of the major industrial sectors of Pakistan and has the potential to drive the entire economy.

Speaking at a press conference on Wednesday, Federal Minister for Industries and Production Khusro Bakhtiar announced measures that the government had introduced to reduce taxes on cars. For engine capacity up to 1,000cc, the government has removed federal excise duty (FED) and additional customs duty (ACD) on locally manufactured cars.

The government has also claimed that the tax relief measures will help boost production of cars to approximately 300,000 units in the current fiscal year and up to 500,000 units by financial year 2022-23.

More importantly, attractive incentives have been formulated for promoting the localisation of cars.

The industries minister said that local car manufacturers would announce a reduction in prices through advertisements, adding that the Federal Board of Revenue (FBR) would notify the reduction in taxes on vehicles in a couple of days.

He was of the view that increasing demand for local vehicles would help achieve the 6% economic growth target and would also provide employment for the local people.

Explaining the salient features of the policy for new vehicles, which had been approved by the federal cabinet, Bakhtiar said that if car manufacturing companies did not reduce prices due to the tax measures announced in the budget, the government would allow import of vehicles in the new auto policy, which was due in August this year.

“If the automakers do not slash their profit, the government will allow import of vehicles and reduce duties on imported cars in the new policy.”

Owing to the reduction in taxes, the minister said, prices of small cars would go down by more than Rs100,000 as cars below 850cc were likely to become cheaper by Rs104,458 to Rs142,388. Prices of cars from 1,001cc to 1,500cc are likely to fall by Rs112,118 to Rs186,375 and in the 1,800cc category, the prices are likely to drop by more than Rs169,985. Meanwhile, in the 2,000cc or above category, the expected decrease in prices is more than Rs229,458.

The companies will announce the price reduction on Thursday through advertisements while the FBR will notify the change in duties and taxes in a day or two.

New auto policy

The government has planned to introduce a new auto policy in August this year.

Outlining the salient features of the new policy, the minister said that advance booking of new vehicles had been set at 20% of the total price while in the coming days the process of vehicle leasing would also be made easier.

The federal minister said that the new vehicle would be registered in the name of the owner and in case of change of ownership within two months there would be additional registration charges of Rs50,000 to Rs200,000.

“If ‘own money’ does not decrease, a fine of up to 10% of the total value of the car can be imposed under the new auto policy,” the minister added.

The industries minister said that 164,000 vehicles were produced last year, but this year the production of vehicles would go up to 300,000 units and by financial year 2022-23 the total production of vehicles would surge to 500,000 units.

He was of the view that for now export of vehicles to the international market was not feasible as the domestic production was not up to 500,000 units.

The increase in vehicle production would provide employment for 300,000 people while the production of motorcycles was also likely to increase from 2.6 million to 3 million, which would provide employment for 75,000 people, he added.

“More attention will be paid to local manufacturing and the share of local industry in this new policy has been increased from 30% to 40%.”

Replying to a question, the federal minister said that there was problem of under-invoicing of a recently installed auto plant.

“Under the new policy, the rates of taxes and duties on spare parts will also be reviewed every six months,” the minister said in response to another question.

Published in The Express Tribune, July 8th, 2021.

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