As the future of Pakistan’s auto industry faces uncertainty and local car assemblers are in a critical position, the recent increase in general sales tax (GST) to 25%, up from 18%, is causing serious worries.
The auto industry is skeptical about the potential benefits of this tax hike. They believe that it may not generate the projected revenue of Rs. 4 billion. Instead, there are concerns that this decision could negatively impact the economy, worsen consumer sentiment, and shake investor confidence in Pakistan.
Position of PAMA
Abdul Waheed Khan, the Director General of Pakistan Automotive Manufacturers Association (PAMA), expressed these concerns in a letter to Caretaker Finance Minister Dr Shamshad Akhtar. He noted that such a GST increase would lead to higher prices of locally assembled cars, especially at a time when used cars are becoming a popular alternative to new cars.
Furthermore, this decision creates an imbalance by not changing taxes on imported used cars, leading to a flood of used cars in the market compared to new cars, resulting in losses in foreign exchange and government revenue.
Request for Reevaluation
Mr. Waheed urged the finance minister to reconsider the decision, highlighting that it would further burden the local industry. Interestingly, this proposal was previously rejected during discussions with industry representatives and vendors.
Meanwhile, auto dealers are preparing for a significant drop in sales of locally assembled vehicles. With the expected price increase due to the GST hike, buyers are likely to turn towards used cars, intensifying the challenges faced by new car sales.
The consequences of this decision are already becoming apparent, with a decrease in CKD imports and a notable decline in auto sales. High interest rates and rising prices have dampened consumer interest in purchasing new vehicles.
