Withdrawal of restriction on non-filers to boost car sales

KARACHI: Withdrawal of restriction on non-filers to own cars is expected to rev up muted auto sales in the country, giving an edge to local carmakers over importers who would continue to face the ban, industry analysts said on Thursday.

“We contend that the measure is aligned with government’s strategy of supporting local industry and discouraging imports into the country in the backdrop of Auto Policy 2016-2021,” Fauzul Sultan, research analyst at BMA Capital Management said. The government on Wednesday got the second finance supplementary bill (mini-budget) cleared from the parliament to remove restriction on non-filers to buy locally-manufactured cars. Nonresident Pakistanis holding international passports could purchase motor vehicles without requirement of tax returns filing.

The restriction has been removed for all engine sizes. Sultan said the government’s ruling would benefit local auto manufacturers and to help boost economic activity.

“Along with improved demand outlook the current measure would likely lead to improvement in pricing power of local manufacturers.”

Except Indus Motors (Toyota), two other automakers suffered decline in sales in the first seven months of the current fiscal year.

Pak Suzuki recorded a 10 percent decrease in sales to 74,903 units.

Sales of Honda Cars slightly dropped to 28,796 from 29,168 units. Toyota’s sales, however, rose nine percent to 38,880 units in the July-January period of FY2019.

Topline Research, however, warned that the amendment would counter the government’s efforts to bring more people into the tax net. Only 1.6 million people in the country file tax returns. Out of them, 400,000 show income below the levels that tax cuts in, another 200,000 have minimal tax, and only 950,000 pay tax of any significance.

The brokerage’s research arm, however, said the new development would particularly be positive for Honda, followed by Toyota and Pak Suzuki.

Analyst Ahmad Lakhani at JS Global Securities said the step is positive for all auto assemblers, particularly Pak Suzuki that witnessed the most significant decline in sales since the restriction was announced in April 2018.

Taurus Securities said all the carmakers would be the beneficiary of the policy reversal, as they would now be able to clear their stocks.

The government also slapped 10 percent federal excise duty on cars above 1,700cc.

“This additional measure will have the most impact on Honda, which sells almost 45 percent of its cars, that is the Civic, in 1,700cc above category,” Topline Research added.

“However, the increase in price for the Civic will result in likely sales push for the City, which comes in 1,300cc and 1,500cc engine capacities. Also, introduction of a lower capacity engine variant for the Civic cannot be ruled out.”

Around 24 percent of Toyota sales are in 1,700cc and above category and the company will also be affected. The company, however, has a 1,600cc variant for its top of the line Toyota model.