Exploring the Effects of Pakistan’s 2024 Budget on the Automobile Industry

Saad Sheikh

July 19, 2024

Property Updates

1. Unraveling the Impact of Pakistan's 2024 Budget on the Automobile

As the dust settles on Pakistan’s much-anticipated 2024 budget, the nation’s automobile industry finds itself at the center of a whirlwind of changes. From a shift in the taxation framework to the withdrawal of key incentives, the sector is bracing for a transformative year ahead. In this comprehensive article, we’ll delve into the intricate web of policy decisions and their potential ramifications on the country’s automotive landscape.

Buckle up, dear readers, as we embark on a journey to uncover the hidden implications, unravel the industry’s concerns, and explore the road ahead for Pakistan’s automobile enthusiasts and stakeholders. Get ready to navigate the twists and turns of this pivotal moment in the industry’s history.

2. The Move from Engine-Based to Price-Based Taxation

One of the most significant changes introduced in the 2024 budget is the shift from engine-based to price-based taxation for motor vehicles. This strategic move by the government aims to create a more equitable and straightforward tax system, ensuring that the actual value of the car, rather than just its engine capacity, is the primary determinant of the applicable taxes.

Aligning Taxes with Vehicle Value

Under the new framework, the registration advance tax for motor cars will now be calculated as a percentage of the vehicle’s price, rather than a fixed amount based on engine size. This change is expected to have a profound impact on the cost of ownership for various vehicle categories.

Luxury Buyers Facing Higher Taxes

The shift to price-based taxation will particularly affect luxury car buyers, who previously benefited from lower taxes due to their vehicles’ smaller engine capacities. Now, these high-end vehicle owners will face higher taxes that better reflect the true market value of their cars

Adjusting to the New System

While the industry has acknowledged the potential benefits of the price-based taxation approach, concerns have been raised about the impact on consumer demand. An industry source noted that the changes may not have a drastic effect, as filers can adjust the advance tax payments accordingly. However, auto sector analysts predict a rise in prices at the consumer level due to the increased advance income tax.

3. Hybrid Conundrum: The End of Concessions for Imported Vehicles

Another significant development in the 2024 budget is the removal of tax concessions for imported hybrid cars. This policy shift marks a departure from the previous efforts to encourage the adoption of hybrid technology and reduce environmental pollution.

Leveling the Playing Field

The government’s decision to withdraw the tax incentives for imported hybrid vehicles is driven by the growing local manufacturing capabilities of these eco-friendly models. With Indus Motor Company and Sazgar Engineering now producing hybrid vehicles like the Toyota Corolla Cross and Haval H6 in Pakistan, the authorities believe it is time to level the playing field.

Implications for Consumers

The removal of the tax concessions on imported hybrid cars is expected to increase the cost of these vehicles for consumers, potentially impacting their market penetration. However, the move may also help boost the sales of locally assembled hybrid models, as they will now face less competition from their imported counterparts.

Consistent Approach Across the Board

Interestingly, the government has also removed the concessions on locally manufactured hybrid vehicles, indicating a consistent approach to promoting a level playing field across the entire automotive industry.

4. Luxury Electric Vehicles: Losing the Subsidy Advantage

In another notable change, the 2024 budget includes the withdrawal of tax concessions on imported luxury electric cars. Previously, these high-end electric vehicles enjoyed tax benefits to encourage the adoption of electric mobility and reduce carbon emissions.

Targeting the Affluent Segment

The government’s rationale for this decision is that the affluent group in the country was primarily purchasing these imported luxury EVs. As Finance Minister Aurangzeb stated, “People who can buy expensive luxury electric can also pay tax on it.”

Potential Impact on EV Adoption

The removal of the tax subsidies on imported luxury electric cars may slow down the overall adoption of electric mobility in Pakistan, as these high-end models were seen as the gateway to introducing EV technology to the market. However, the government’s focus appears to be on striking a balance between promoting eco-friendly transportation and ensuring fair taxation.

5. Promoting Sustainable Mobility: The Rise of E-Bikes

In a move aimed at climate change mitigation, the 2024 budget includes an allocation of Rs4 billion for the promotion of e-bikes, along with an additional Rs2 billion for energy-efficient fans. While the government has not provided specific details on how these funds will be utilized, the initiative signals a broader push towards sustainable mobility solutions.

Incentivizing Greener Alternatives

The investment in e-bikes and energy-efficient fans suggests the government’s commitment to encouraging the adoption of environmentally-friendly transportation and household appliances. This strategy aligns with the global trend of transitioning towards more sustainable modes of mobility and energy usage.

Potential Impact on the Automobile Industry

The promotion of e-bikes could have a ripple effect on the automobile industry, as consumers may opt for these eco-friendly alternatives, particularly for shorter commutes and urban transportation needs. This shift could potentially impact the demand for traditional internal combustion engine vehicles, prompting automakers to adapt their product portfolios and strategies.

6. Curbing the Influx of Used Car Imports

Alongside the changes in the taxation framework, the auto sector has also voiced concerns about the rising influx of used car imports, which they believe are undermining the local industry and contributing to the transfer of foreign exchange through the grey market.

Demand for Measures to Restrict Used Car Imports

The industry has called for the government to implement measures to curb the growing trend of used car imports, which they argue are not only negatively impacting domestic production but also facilitating the transfer of foreign currency through unofficial channels.

Highlighting the Economic Implications

According to Indus Motor Company CEO Ali Asghar Jamali, the automotive industry, including vendors, provides up to 5 million direct and indirect jobs, whereas the number of jobs created by used car importers is negligible. This disparity underscores the industry’s concerns about the broader economic implications of the used car trade.

Calls for Equalization of Duties and Taxes

The auto sector has proposed that the government should equalize the regulatory duty (RD) and additional customs duty (ACD) between locally assembled vehicles and used car imports. This move aims to create a more level playing field and address the perceived unfair advantage enjoyed by used car importers.

7. Navigating the Challenges: Industry Proposals and Government Responses

As the auto industry grapples with the changes introduced in the 2024 budget, it has put forth a series of proposals and recommendations to the government, seeking to address their concerns and ensure the sector’s long-term sustainability.

Reducing Depreciation Rates

One of the industry’s key demands is the reduction in the depreciation rate applied to used car imports, from the current 1-2% to a more favorable 0.5%. This adjustment, they argue, would help mitigate the perceived advantages enjoyed by used car importers.

Ensuring Proper Use of Gift Schemes

The auto sector has also raised concerns about the potential misuse of gift schemes to import second-hand vehicles, which often end up in the showrooms of commercial importers rather than being used by the intended overseas Pakistani families. The industry has called for stricter regulations and monitoring to prevent this practice.

Balancing Interests and Fostering Growth

As the government navigates these industry-specific challenges, it will need to strike a delicate balance between addressing the concerns of the local auto manufacturers and promoting an environment that fosters sustainable growth and innovation. The outcome of these negotiations and policy adjustments will shape the future trajectory of Pakistan’s automobile landscape.

8. Navigating the Road Ahead: Challenges and Opportunities

As the auto industry, consumers, and the broader economy grapple with the implications of the 2024 budget, it becomes crucial to identify the potential challenges and explore the emerging opportunities that this transformative period presents.

Balancing Affordability and Revenue Generation

One of the primary challenges will be striking the right balance between maintaining affordability for consumers and generating the necessary revenue for the government. The shift to price-based taxation and the withdrawal of incentives could lead to higher vehicle prices, potentially impacting demand and accessibility.

Fostering Innovation and Sustainable Mobility

The government’s efforts to promote eco-friendly alternatives, such as e-bikes and energy-efficient appliances, present an opportunity for the auto industry to align its product portfolios with the evolving consumer preferences and environmental concerns. Embracing innovation and transitioning towards sustainable mobility solutions could position Pakistan as a leader in the global shift towards greener transportation.

Enhancing Tax Compliance and Broadening the Tax Base

The budget’s measures aimed at increasing tax compliance and broadening the tax base, such as the higher advance tax rates for non-filers and the capital gains tax revisions, could contribute to a more equitable and transparent fiscal system. However, the success of these initiatives will depend on the government’s ability to effectively implement and enforce the new policies.

9. Conclusion: Navigating the Road Ahead with Resilience and Innovation

The 2024 budget has ushered in a new era of challenges and opportunities for Pakistan’s automobile industry. From the shift in the taxation framework to the withdrawal of incentives, the sector finds itself at a pivotal juncture, where navigating the road ahead will require a delicate balance of resilience, innovation, and strategic adaptation.

As the government and industry stakeholders work together to address the concerns and harness the emerging possibilities, the future of Pakistan’s automotive landscape hangs in the balance. With a clear vision, proactive policymaking, and a commitment to fostering a sustainable and equitable ecosystem, the country can unlock the full potential of its automobile sector, driving economic growth and environmental responsibility in tandem.

The journey ahead may be filled with twists and turns, but with the right mindset and collaborative efforts, the automobile industry in Pakistan can emerge as a shining example of resilience and adaptability, paving the way for a brighter, more prosperous future.