Islamabad, February 2024 — The automotive industry in Pakistan has voiced strong concern following the government’s recent decision to raise the sales tax to 25% on locally assembled cars priced above Rs. 4 million with engine capacities below 1,400cc. The measure, approved by the Economic Coordination Committee (ECC), is expected to further burden an industry already facing a steep downturn.
According to recent data, car sales plummeted by 66% in December 2023, driven by persistent inflation, high interest rates, and a weak rupee. Industry analysts warn that the tax hike could further dampen consumer demand, especially in the compact and mid-range segment which was already reeling from declining affordability.
Concerns Over Revenue and Industry Health
Industry stakeholders argue that the cumulative impact of duties and taxes now exceeds 50% of the total price of certain vehicles. The Pakistan Automotive Manufacturers Association (PAMA), citing a 47.6% year-on-year decline in car sales during the first seven months of FY 2024, has cautioned that this move may lead to lower overall tax revenue due to reduced sales volumes.
Automakers and industry bodies have criticized the decision, stating that it was implemented without adequate consultation with sector stakeholders. They fear that the policy may discourage local manufacturing, trigger layoffs, and stall future investment in the industry.
Impact on Local Assemblers and Consumers
The increase in sales tax disproportionately affects locally assembled compact vehicles—previously considered more affordable options. Experts believe that this change could shift consumer interest away from local options or towards the used car market, hurting domestic assemblers.
Furthermore, with shrinking sales, plant closures, and reduced production cycles, the industry’s capacity to rebound in 2024 remains uncertain.
PAMA’s Position and Industry Outlook
PAMA and other trade bodies have urged the government to reconsider the hike, recommending a more balanced taxation policy that encourages industry revival while ensuring sustainable revenue collection.
They argue that policy consistency and industry-government collaboration are key to long-term growth in Pakistan’s auto sector, particularly at a time when electrification, localization, and affordability are critical focus areas.
Conclusion
The 25% sales tax on locally assembled cars priced above Rs. 4 million is expected to further challenge Pakistan’s automotive sector. As demand shrinks and production slows, both automakers and policymakers must weigh the short-term fiscal gains of higher taxation against the long-term health and viability of the industry.
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