Used Cars Take Center Stage Amid Tax Increases

Abdullah

28 Feb 2024

409

Used Cars Take Center Stage Amid Tax Increases

In the face of a challenging future for Pakistan's automotive sector, a looming proposal to elevate the general sales tax (GST) from its current 18% to a staggering 25% has triggered significant unease among local car assemblers. This move, anticipated to yield around Rs. 4 billion in revenue, is met with skepticism regarding its positive impact, giving rise to concerns about potential adverse effects on the economy, consumer sentiments, and investor confidence.

PAMA's Alert to the Finance Minister

Director General of the Pakistan Automotive Manufacturers Association (PAMA) communicated these apprehensions through a letter addressed to Caretaker Finance Minister Dr. Shamshad Akhtar. He underscored the likelihood of the GST hike resulting in an upswing in prices for locally assembled cars, aggravating the already challenging scenario of used cars replacing their high-priced new counterparts. Furthermore, the decision introduces an asymmetry by maintaining unchanged taxes on imported used cars, leading to an inundation of used vehicles in the market, causing losses in foreign exchange and a dip in government revenue.

A Plea for Reevaluation

Mr. Waheed pressed the finance minister for a reevaluation of this choice, underscoring the extra strain it could place on the regional sector. It's noteworthy that this proposal had faced rejection in earlier dialogues with industry representatives and suppliers.

Auto Dealers Brace for Impact

Local auto dealers are gearing up for a substantial decline in sales of locally assembled vehicles. With the expected New Car Price hikes resulting from the GST increase, prospective buyers are predicted to shift their focus even more towards the used car market, intensifying the challenge faced by new car sales. Already, the ramifications of this decision are evident, with a marked decrease in Completely Knocked Down (CKD) imports and a significant downturn in overall auto sales. The combination of elevated interest rates and escalating prices has further subdued consumer enthusiasm for acquiring new vehicles.

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