Tax Relief

Pakistan’s auto gross sales are anticipated to extend in 2022 as a result of tax breaks

Photo: Geo.tv/ file

  • The auto sector in Pakistan is expected to see robust growth in 2022 due to tax breaks and levies from the government.
  • In the first 11 months, the auto companies registered with PAMA sold 210,048 units compared to 110,540 units in the same period last year.
  • The volume of two-wheelers increased by 30% to 1,707,348 units in the first 11 months of the 2021 calendar year compared to the previous year.

KARACHI: After the recent tariff and tax incentives for the auto industry in Pakistan, the sector is expected to see robust growth in 2022, according to experts

Despite the looming economic challenges, experts predict an increase for the coming year as auto sales soared around 90% in the first 11 months of the 2021 calendar year, The News reported.

Auto companies registered with the Pakistan Automotive Manufacturers Association (PAMA) sold 210,048 units in the first 11 months, compared to 110,540 units for the same period last year.

“There was a pickup in economic activity in 2021, leading to higher demand for cars,” said analyst Arsalan Hanif, adding that lower key interest rates during the year helped car sales in the country.

Car finance rose to Rs 346 billion by October 2021, up 44% year over year.

“But the high percentage increase in auto sales in 2021 was due to a small base effect. The year 2020 was badly affected by the pandemic, “added Hanif.

In an effort to stimulate the auto sector and bring affordable cars to the public, the government has cut taxes, cut the FED on vehicles across the board, and cut sales tax on cars under 1000cc, resulting in lower car prices while increasing of sales.

New car models have been launched in the country this year, namely Honda City, Changan Alswin, Proton Saga, X70, Hyundai Elantra, Sonata, KIA Sorenta and Stonic.

The volume of two-wheelers increased in the first 11 months of the 2021 calendar year by 30% year-on-year to 1,707,348 units compared to 1,317,635 units in the same period of the previous year. Motorcycle sales were led by Suzuki by 93% to 29,192 units, Atlas Honda by 42% to 1,237,631 units and Yamaha by 27% to 19,362 units.

However, market sources say the cheapest car option – sales of China’s 70cc motorcycles have declined over the year. Experts associate it with the financial struggle of the low-income group and the rising inflation in the country. The volume of three-wheelers also fell by 10% to 41,555 units compared to the previous year.

In the current year, the appreciation of the rupee initially kept car prices in check despite rising raw material costs and higher freight costs. The government also expected automakers to keep prices constant as they cut taxes for the industry.

In the budget, the government cut sales tax from 17.5% to 12.5% ​​for cars under the 1,000 cc category and cut the FED by 2.5 percentage points across the board. As a result, the car companies passed the impact on to consumers, lowering car prices by 60,000 rupees and 400,000 rupees.

However, as the rupee fell to a record low, car prices rose 6% at Toyota, 7% at Honda, 10% at KIA, and up to 14% at Pak Suzuki cars.

Meanwhile, the central bank took several credit tightening measures to curb the spike in auto loans amid broader concerns about the growing current account deficit.

In September, the SBP increased the minimum deposit limit from 15% to 30%, the maximum repayment period on car loans from seven to five years, and the debt ratio from 50% to 40%, and also capped the maximum auto finance loan to 3 million rupees. However, these restrictions do not apply to cars under 1000 cc.

Nevertheless, experts assume that car sales will continue to increase in the coming year.

“I expect auto sales to spike by 2022 in 2022,” Hanif said, adding that auto volume would see sales of about 300,000 units higher, including volumes from non-PAMA members in 2021.

It is estimated that PAMA members will be able to sell an additional 15,000 units in December. Companies like Kia and Changan don’t share their numbers with PAMA and the market puts their numbers at around 25,000 units in 2021, bringing the total industry sales to 250,000 in 2021.

However, Muhammad Awais Ashraf, head of Research Foundation Securities, expects 12-14% more auto sales.

“Car financing is becoming more expensive because the key interest rate has risen to 9.75%. It could go up 100 percentage points in the next year, ”he said.

However, he said the government may seek economic expansion during the next budget, which will be the election year.

“We may see an increase in auto sales in the second half of the year,” he said.

The government approved the Automotive Industry Development and Export Plan (AIDEP 2021-26) in the Finance Act 2021. In the new directive, several tax incentives were given to electric vehicles and hybrids.

Local Electric Vehicle (EV) sales tax has been reduced from 17% to 1%. The duty rate on certain parts of the electric vehicles has been set at 1%. The duty for the import of EVs completely built up (CBU) has been reduced from 25% to 10%. The VAT on hybrids has been reduced to 8.5%.

According to the directive, no car will be imported or assembled after June 2022 that does not comply with the shortlisted WP 29 regulations. This also means that cars without airbags can no longer be assembled or imported in Pakistan.

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