Assemblers unhappy with anticipated tax hike – Journal

KARACHI: Local vehicle assemblers are not happy with the new budget and say the government has decided to increase the advance tax on motor vehicles above 1,600cc on its own, because the industry has not proposed it . The decision, they say, is also discriminatory and will lead to lower auto sales.

The advance tax on the purchase of motor vehicles over 1,600 cc has been doubled, while a 3% tax will be applicable on electric vehicles costing Rs 5 million or more.

A 2pc capital value tax (CVT) on motor vehicles worth more than Rs 5 million had also been imposed, according to an analyst at Sherman Securities. The government had already banned the importation of motor vehicles. The overall budget bodes ill for auto assemblers, as these measures were aimed at reducing demand in order to reduce expensive luxury imports. The negative impact was more likely to be seen in premium cars, while demand for vehicles 1000cc and below would be slightly affected due to a higher price differential and fuel savings.

President of the Automotive Division of Lucky Motor Corporation, Muhammad Faisal, called it “a good overall budget” in the current economic circumstances. However, he said some of the proposals were discriminatory and would hurt sales of locally made vehicles.

For example, withholding tax (WHT) should be increased at all levels and not just on a certain category of vehicles, he said. With the proposed increase in WHT on vehicles over 1600cc, some assemblers would gain a considerable advantage over competing products due to the smaller engine size despite competing in the same segment.

Mr Faisal said the government must raise the WHT fairly with no exceptions. “This step will certainly encourage more documentation in the economy,” he said.

In addition, the 2pc CVT would also increase the cost of vehicles, which would further reduce the already sluggish demand due to the sharp devaluation of the rupee, increased federal excise duties, restrictions on auto financing as well as further cost increases, he noted.

He was of the opinion that the assemblers were already struggling to manage their operations as they could not get permission from the State Bank of Pakistan to open letters of credit since May 20 due to a recent condition. imposed by the government.

Pakistan Automobile Manufacturers Association chief executive Abdul Waheed Khan said his body had not come up with any advance tax increase and that it was the government’s own decision.

However, he said, it appeared that this increased tax would be adjustable for filers and applicable to all unregistered vehicles, including new used and imported cars. The government had mainly focused on non-filers who bought expensive cars without paying income tax, he commented.

Pakistan Car Dealers and Importers Association Chairman Mian Shoaib Ahmed said the anticipated tax increase does not apply to imported used cars, adding that the entire budget is silent in the used car sector.

Posted in Dawn, June 11, 2022

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