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August 23, 2019

Taxes, rupee depreciation put breaks on auto sales: PSMC


August 23, 2019

KARACHI: Pak Suzuki Motors Company Limited (PSMC) holds rupee depreciation and tax measures responsible for the rising cost of production, which has pushed sales down by 12 percent in six months.

In its half-yearly report submitted to the Pakistan Stock Exchange (PSX) on Thursday, PSMC informed that its sales recorded a decline of 11 percent to 68,147 units in January-June 2019 from 76,482 units in the corresponding period of last year. This, the PSMC said was in line with the trend in the industry.

Sales volume of auto industry for cars and light commercial vehicles was recorded at 118,519 units compared to 134,494 units in the corresponding period of last year, registering decrease of 12 percent.

The total sales volume of the Suzuki Motors represented 56 percent of Pakistan’s total market of cars and light commercial vehicles. “Devaluation of rupee resulted in increase in imported material cost,” the directors’ report said, adding that it affected the gross profit margins.

“Pakistan’s economy is in difficult situation,” the report said. “We witnessed sharpest increase in policy rates in recent time by State Bank of Pakistan. SBP further increased policy rate by 100 basis points to 13.25 percent in ‘Monetary Policy’ announced in July 2019.”

Government tax measures announced in the Federal Budget 2019-20 have severely hit the auto industry. Additional customs duty (ACD) on imported material has been increased by 2.0 percent to 5.0 percent. Government also imposed ‘regulatory duty’ on import of different kinds of vehicles. The government has enlarged the scope of federal excise duty and imposed FED on locally assembled cars as well as on imported cars at the rate of 2.5 percent with engine capacity up to 1000cc, 5.0 percent from 1001cc to 2000cc and 7.5 percent on 2001cc and above.

Further, government withdrew gradual reduction in corporate tax rate from 29 percent to 25 percent and on the other hand increased minimum tax from 1.25 percent to 1.5 percent of turnover. “These additional taxes coupled with massive depreciation of rupee adversely affected the cost of vehicles and it forced the OEMs to increase the prices of their vehicles,” report added.

The report also said that the higher prices of vehicles would likely affect sales volumes of the auto industry, as price hikes would weaken the purchasing power of the costumers. The PSMC operated at 80 percent capacity utilisation during these six months and achieved production volume of 60,098 units.

During the period under review, the organised market (PAMA member companies) for motorcycles and three wheelers decreased from 990,102 units to 855,396 units. Decrease of 134,706 units represents 14 percent decline in sales volume over the same period last year.

However, company sales volume remained consistent and achieved sales volume of 11,600 units as compared to sales volume of 11,292 units in the corresponding period last year. Operating results of the PSMC incurred net loss of Rs1.526 billion compared to net profit Rs1.298 billion in the same period of last year. Net sales revenues increased by Rs3.145 billion to Rs65.429 billion from Rs62,284 million. Higher prices in current period contributed to increased sales revenue by five percent over the same period of last year. However, gross profit decreased in absolute terms by Rs2.886 billion to Rs1.372 billion (January-June 2019) from Rs4.258 billion (January-June 2018). Gross profit margins as a percentage of net sales declined from 6.8 percent to 2.1 percent of net sales.

The PSMC report said the company was endeavouring to improve sales, profitability and diversity in its operations by upgrading the existing products and launching new products. Macroeconomic indicators of the country were challenging for the auto industry. “Rupee devaluation, rising raw material prices, increase in interest rate and additional taxes and duties imposed through federal budget are major challenges for the auto industry,” it said.

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