ISLAMABAD - Huge jump in General Sales Tax (GST) from 18 percent to 25 percent on automobiles would lift cars prices to over Rs4 million. Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) has shown serious concern over the proposed hike in sales tax from 18 percent to 25 percent on automobiles, as it would jump the rates of cars as high as Rs4 million or above. In a unified stance, the PAAPAM’s leadership, comprising of Chairman Abdul Rahman Aizaz, SVC Mumsahd Ali, and VC Taufique Sherwani are of the opinion that previous move to increase ST to 25 percent on 1400cc cars alongwith other taxation measures and devaluation of rupee have already resulted in drop of automobile sales to just 30 percent of 2021-22 levels. This sharp decline has not only resulted in duress to the part making sector and cut in employment generation but also resulted in lesser absolute tax collection from the sector.
Highlighting the current challenges like souring energy prices, currency devaluation of over 160 percent in just 6 years, exceptionally high financing rates, and over 40 percent taxation on every car sold have already curtailed sale to just 100,000 cars/SUVs against the installed capacity of 500,000 vehicles. They 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.
They expressed surprise that the government had 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, causing a loss of foreign exchange and legitimate revenue to the government. They said that the Economic Coordination Committee’s decision to increase the general sales tax to 25 percent on locally produced vehicles of 1,400cc and above will result both in a drop in volumes as well as revenues, as it is highly unlikely that a hike in GST would additionally generate revenue.
The measure would only hit the economy, enhancing negative sentiments for the consumers and losing investors’ confidence in Pakistan, fearing a rise in prices of locally assembled cars which are already marred by hyperinflation and slowdown. PAAPAM’s leadership emphasised that increasing GST to 25 percent for small size sedans will push the prices beyond purchasing power of country’s middle class. Such a move will not only hurt the customer but will also yield lesser collection of tax due to anticipated lesser sale. They urged the authorities 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. PAAPAM has requested for dialogues with government before taking any decision on imposing further taxes on automobiles.
