Automakers Alarmed as Sales Tax on Cars Surges to 25%

The recent decision by the government to increase the sales tax on cars to 25% for vehicles with an engine capacity under 1,400cc and priced above Rs4 million has raised concerns among automakers. This move, sanctioned by the Economic Coordination Committee (ECC), adds pressure to an already challenged automotive industry in Pakistan. The industry has experienced a sharp 66% drop in car sales in December, attributed to high prices and inflation.

Automotive industry representatives are cautioning that this tax hike could lead to even lower car sales, as the cost of vehicles rises, possibly resulting in diminished tax revenue from this sector. They argue that the decision, leading to duties and taxes now accounting for more than half of a car’s price, was implemented without sufficient consultation with the industry.

The Pakistan Automotive Manufacturers Association (PAMA) reports a 47.6% decrease in car sales year-on-year in the first seven months of fiscal year 2024. The industry perceives this tax increase as a potential obstacle to the recovery of the already struggling automotive sector.