Exorbitant taxes make cars unaffordable for masses in Pakistan

KARACHI: Exorbitant taxes are the real cause behind high prices of cars in Pakistan as taxation constitutes at least 40 percent of the retail value of a new car, market experts said on Monday.

The experts told the News that approximately 40 percent of the total price of locally-manufactured cars is made of taxes. The value includes at least seven taxes and levies, namely customs duty, additional customs duty (based on engine size), income tax, general sales tax, federal excise duty, withholding tax and registration tax.

A conventional 660cc carries up to 73 percent of taxes on completely knock-down. Likewise, a new 1,800cc vehicle should be available at Rs2.3 million to the customer if it does not carry taxes of Rs1.6 million.

Buyers said the lower middle class is left with no choice to own a car after an end of production of Suzuki Mehran and prices of its variants are beyond their affordability. Since the closure of Suzuki Mehran, the popular 800cc car, in March last year, it was the first time in August this year that auto sales showed an increase.

Sales of passenger cars increased 8.3 percent year-on-year in August. Last time, the annual sales were up in March 2019. The major reason for lower sales was higher taxes, said one analyst.

“Besides, a customer is paying more due to the rupee depreciation in relation to the US dollar,” said Mashood Ali Khan, an automotive industry expert. Original equipment and auto parts manufacturers depend on imports of raw materials and other components.

In the last five years, the rupee fell 61 percent from Rs104 to Rs168 against the dollar. Over the last 10 years, the rupee depreciated over 200 percent from Rs85 to Rs168.

It seems that the government considers the auto sector as a big revenue stream as with the increase of Rs100,000 in a vehicle’s price up to Rs40,000 goes to the government, said another expert.

“This nullifies the common perception that car manufacturers are behind the high prices of cars whereas the fact is that they are still producing high value cars at very competitive prices,” said a local car manufacturer. “Yet, local manufacturers are majorly producing vehicles which are following 4 star rating criteria under the new car assessment program for safety and strict globally implemented guidelines.”

The local auto industry is the largest taxpayer in the country while Pakistan is one of the only 40 automobile producing countries.

“I would suggest all should be thinking on how to reduce prices and how to support auto parts manufacturers to be part of the global supply chain and vehicles export in the region,” said the expert.

The ongoing debate on car prices at the legislative level may help the government provide relief to car consumers, though reduction in taxes is all important.