KARACHI: Auto assemblers and vendors have expressed surprise and concern over excluding imported used cars below 1,300cc from the newly imposed 15 per cent regulatory duty (RD), despite the government’s earlier assurances to curb used car imports.

Finance Bill 2024-25 has introduced an RD of 15pc on imported used vehicles above 1,300cc while exempting those below 1,300cc. “We were hopeful that the new budget would implement strong measures to discourage the illegal trade of used car imports, often serving as a parking lot for black money. However, we are dismayed by the budgetary measures,” said Abdul Rehman Aziz, chairman of the Pakistan Association of Automotive Parts and Accessories Manu­fac­turers (PAAPAM).

He said 70pc of used car imports consisted of vehicles below 1,300cc, which are not subject to the new regulatory duty.

Mr Aziz said the auto sector’s total sales volume was expected to reach 135,000 units, with 35,000 units comprising imported used cars. He claimed that more than 50,000 Pakistanis lost their jobs in the fiscal year 2023-24 due to the influx of used cars impacting the market for locally assembled vehicles.

Assemblers claim over 50,000 people lost jobs in FY24 due to used cars’ influx

He suggested reducing the depreciation rate for used cars, currently at 1pc per month from the manufacturing date for duty calculations to 0.5pc per month.

Additionally, vehicles imported under gift, baggage and transfer of residence schemes should first be registered in the importer’s name, with subsequent transfers allowed only after three years.

The PAAPAM chief also highlighted the scale of the used car market, valued at over Rs150 billion in fiscal 2024. He criticised the use of illegal hawala channels for payments to Japan and the sale of these cars for cash locally. The prices of used imported cars range from Rs3 million to Rs100 million, benefiting the upper-middle and upper classes at the expense of common workers earning Rs32,000 per month, he said.

Change in taxes

A local assembler pointed out a significant change in withholding tax, now based on vehicle price rather than engine size. This would increase vehicle prices. However, the tax is adjustable for filers against their tax liability but will impact non-filers.

For example, a filer will now pay 1.5pc withholding tax or Rs69,735 on a car with an invoice value of Rs4.65m, compared to Rs25,000 before the budget. Non-filers will pay 4.5pc or Rs209,205 for the same purchase. For cars above 1,200 to 1,500cc, the tax rate for active tax filers has increased to Rs109,000-200,000.

Finance Bill 2024-25 has also shifted from a fixed tax rate to a value-based tax system.

The tax rate is now 0.5pc for vehicles of up to 850cc, replacing the previous fixed tax of Rs10,000. Vehicles ranging from 851 to 1000cc are now taxed at 1pc, compared to Rs20,000. From 1001 to 1,300cc, a 1.5pc tax rate is applied, replacing the previous fixed tax of Rs25,000.

Vehicles having 1301-1600cc are taxed at 2pc, compared to the previous fixed tax of Rs50,000. The 1601-1800cc vehicles are now taxed at 3pc, compared to Rs150,000 previously. Vehicles between 1801 and 2000cc now carry a 5pc tax rate as against an earlier fixed tax of Rs200,000. For vehicles from 2001 to 2500cc, the tax rate has been increased from 1pc to 7pc. Vehicles in the 2501-3000cc range are now taxed at 9pc.

He said the government earlier rescinded general sales tax exemption from locally produced hybrid electric vehicles (HEVs) by raising GST to 25pc from 8.5pc, but later retracted and decided to maintain GST at 8.5pc to facilitate the HEV makers.

The government has levied 15pc regulatory duty on used vehicles above 1,300cc, including HEVs, indicating that imported used vehicles like Toyota Aqua, Honda Vezel and CHR will become more expensive.

He added that RD was not imposed on vehicles below 1,300cc like Daihatsu Mira, Nissan Dayz, Toyota Vitz and Toyota Passo, which would continue to enjoy fixed taxes under the baggage scheme.

However, this exemption could impact Pak Suzuki Motor Company Limited (PSMCL), which produces small-engine vehicles like Alto 660cc, Suzuki WagonR and Cultus (1,000cc), as well as Suzuki Swift (1,200cc).

The government has also removed customs duty exemptions on both new and old completely built unit (CBU) hybrids under SRO 499, increasing their prices and offering more protection to local HEV manufacturers.

The largest impact of both the 15pc RD and the withdrawal of the 50pc customs duty exemption will be on used HEVs like Honda Vezel, Toyota Yaris Cross, Honda CHR HEV, and Toyota Corolla Cross, whose prices are expected to rise by Rs2.5m to Rs3m from the current value of Rs7.5m to Rs9.5m.

Published in Dawn, July 4th, 2024