Tax Relief

Tax relief to decrease automobile costs by as much as Rs 229,000


The government has reaffirmed its commitment to lower vehicle prices as it has given the auto sector budget tax breaks for fiscal year 2021-22 that will cut car prices by up to 229,458 rupees.

The automotive sector is one of the most important industries in Pakistan and has the potential to boost the entire economy.

Federal Minister for Industry and Production Khusro Bakhtiar announced at a press conference on Wednesday measures that the government had initiated to lower taxes on cars. For a displacement of up to 1,000 cc, the government has abolished the federal excise tax (FED) and additional tariffs (ACD) on locally made cars.

The government has also claimed that the tax breaks will help increase car production to around 300,000 units in the current fiscal year and up to 500,000 units by fiscal 2022-23.

More importantly, attractive incentives have been formulated to encourage car localization.

The industry minister said local automakers would announce a price cut through advertisements, adding that the Federal Revenue Service (FBR) would notify the vehicle tax cut in a few days.

He believes that increasing demand for local vehicles would help achieve the targeted 6% economic growth and also create jobs for the local population.

Outlining the key features of the new car policy approved by the federal cabinet, Bakhtiar said the government would allow vehicles to be imported into the U.S. if automakers didn’t cut prices on the fiscal measures announced in the budget’s new auto policy due this August was.

“If automakers don’t cut their profits, the government will allow vehicles to be imported and lower tariffs on imported cars under the new policy.”

As a result of the tax cuts, small car prices would drop by more than 100,000 rupees as cars under 850 cc would likely drop by 104,458 rupees to 142,388 rupees. Prices for 1,001cc to 1,500cc cars are likely to drop by Rs 112,118 to Rs 186,375, and prices in the 1,800cc category are likely to drop by more than Rs 169,985. In the 2,000 cc or more category, the expected price drop is more than 229,458 rupees.

Companies will announce the price cut through advertisements on Thursday, while the FBR will announce the change in tariffs and taxes in a day or two.

New car guidelines

The government plans to introduce a new auto policy in August this year.

Outlining the main features of the new directive, the minister said that the pre-sale of new vehicles had been set at 20% of the total price, while the vehicle leasing process would also be facilitated in the coming days.

The federal minister said that the new vehicle will be registered in the name of the owner and that there will be additional registration fees of Rs 50,000 to Rs 200,000 in the event of a change of ownership within two months.

“If the ‘own money’ does not decrease, a fine of up to 10% of the total value of the car can be imposed under the new car policy,” added the minister.

The industry minister said 164,000 vehicles were produced last year, but this year vehicle production will increase to 300,000 units and total vehicle production will increase to 500,000 units by fiscal year 2022-23.

He was of the opinion that exporting vehicles to the international market would not be possible for the time being, as the domestic production was not up to 500,000 units.

The increase in vehicle production would provide employment for 300,000 people, while motorbike production would likely also increase from 2.6 million to 3 million, which would provide employment for 75,000 people, he added.

“More attention is being paid to local manufacturing and the share of local industry in this new policy has increased from 30% to 40%.”

In response to a question, the Federal Minister replied that there was a problem with under-invoicing at a recently installed car plant.

“As part of the new policy, the tax and duty rates for spare parts will also be reviewed every six months,” said the minister on another question.

Posted in The Express Tribune, July 8th, 2021.

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