PAAPAM opposes 25pc sales tax

By Our Correspondent
February 22, 2024

LAHORE: The Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) on Wednesday voiced its opposition to a proposed increase in sales tax on cars, saying it would hurt the local industry and reduce tax revenue.

Vehicles can be seen in a workshop. — AFP/File

The government is considering raising the sales tax rate from 18 percent to 25 percent on cars priced above Rs4 million. PAAPAM said the move would further dampen the demand for locally made cars, which have already seen a sharp decline in sales due to high inflation, currency devaluation, and rising interest rates.

PAAPAM chairman Abdul Rahman Aizaz said in a statement that the previous hike in sales tax on cars with engine capacity of 1400 cc or above, along with other taxation measures and devaluation of rupee, had resulted in a drop of automobile sales to just 30 percent of the 2021-22 levels.

“This has not only caused distress to the parts making sector and reduced employment generation, but also led to lower tax collection from the sector.” He added that the current challenges such as soaring energy prices, currency devaluation of over 160 percent in just six years, exceptionally high financing rates, and over 40 percent taxation on every car sold had already curtailed sales to just 100,000 cars and SUVs against the installed capacity of 500,000 vehicles.

Aizaz said that automobile production and sales had been on a downward trajectory for the last five years, and that automobiles were demand-elastic items whose sales would further go down with a jump in prices. He also 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.