KARACHI: The Economic Coordina­tion Committee’s (ECC) decision to increase the general sales tax to 25 per cent on locally produced vehicles of 1,400cc and above or priced Rs4 million will result in a drop in volumes and revenues.

The auto assemblers said it is highly unlikely that a hike in GST would additionally generate revenue of Rs4 billion.

The measure would only hit the economy, enhancing negative sentiments for the consumers and losing investors’ confidence in Pakistan, Pakistan Automotive Manufacturers Association (PAMA) Director General Abdul Waheed Khan informed Caretaker Finance Minister Dr Shamshad Akhtar through a letter written on Feb15.

He feared a rise in prices of locally assembled cars which are already marred by galloping inflation and slowdown besides ruining demand.

Market players say govt has not issued notification yet

He said that automobile production and sales have been on a downward trajectory for the last five years. Automobiles are demand-elastic items whose sales would further go down with a jump in prices and the GST rise would prove counterproductive.

Mr Waheed expressed surprise that the government has kept the taxes unchanged on imported used cars, thus making a case for negative protection to locally made vehicles.

The used cars have managed to fill the market vacated by locally produced vehicles. The share of used cars has gone up to 30 per cent from 10pc causing a loss of foreign exchange and legitimate revenue to the government.

The PAMA DG urged the finance minister not to further burden the local industry by raising the GST. This proposal to enhance the GST was earlier turned down when it was discussed with industry representatives and vendors.

Auto dealers said that so far they have not received any SRO or notification regarding GST hike. The issuance of relevant notification will further clear the situation.

The GST on above 1,400cc vehicles is already 25pc while on below 1,400cc, it has been raised to 25pc from 18pc.

“I expect a sales drop of 50-60pc in locally assembled vehicles in coming months given price hike on account of GST hike which will make buyers further reluctant towards locally produced vehicles,” a dealer said.

He added that expensive auto financing on account of high interest rates of 22pc coupled with already high prices had already hit the auto sector sales.

The import bill of completely knocked down (CKD) kits in January plunged to $37m from $104m in December 2023, while imports stood at $72m in November 2023 and $23m in October 2023, respectively.

Total CKD import bill fell to $422m during 7MFY24 from $545m in the same period last fiscal year.

The auto sales (cars, jeeps, SUVs and vans) had witnessed an 81pc jump in sales during January to 10,536 units versus 5,816 during December 2023. The above segment sales had remained 48pc lower in 7MFY24 to 49,990 units as compared to 95,240 in the same period last fiscal year as a result of high interest rates and rising prices.

Published in Dawn, February 17th, 2024