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With sales decreasing by 27% in the second quarter of 2013 compared to the same period last year, any hopes the auto industry had of a boost from the government were dashed when the Federal Budget was announced earlier this month.

According to the 2013-14 Budget, car purchases would be subject to new tax slabs based on engine capacities, increasing end-user prices by additional Rs 10,000-150,000 per vehicle. Motor registration tax structures were also revised, raising net prices by Rs 8,000-80,000 per vehicle, depending on engine capacities.

Additionally, a federal excise duty of 10% was recommended on sales of imported and local vehicles of 1800cc and above, although this would push up prices for a clientele unlikely to feel the impact of this price hike, given their strong purchasing power. Another big concern is the one percent additional general sales tax recommended on Original Equipment Manufacturers (OEMs) – car manufacturers as well as vendors who progressively manufacture automobile parts in Pakistan. They are likely to pass this burden on to end users, pushing prices up even more. The net result of these measures will likely stall demand for new cars, prompting buyers to look into the used/imported car market instead.

There were, however, some bright points in the budget. In a major step to promote fuel-efficient and environment-friendly vehicles, import duties and taxes were exempted for hybrid vehicles under 1200cc, and slashed by 50% and 25% for 1201-1800cc and 1801-2500cc vehicles respectively.

While there are limited import options for hybrid vehicles under 1200cc, the incentive to import is still significant – a used 2010 Toyota Prius (1500cc) can now be imported for Rs 1,815,000 (as opposed to Rs 2,100,000 prior to the Budget). Furthermore, all tax and duty exemptions hitherto availed by government bigwigs and VVIPs will be culled.
What of the future? Analysts state that demand will decrease, posing short term threats to the industry. All eyes are also on the Punjab government to see if the employment-driven taxi scheme will be revived, beefing up dwindling industry coffers.

– Mazhar Chinoy

First Published in the Adbuzzzz Section of the DAWN National Weekend Advertiser on June 23, 2013.