In the budget for FY23, Finance Minister Miftah Ismail has proposed an increase in the advance tax on luxury vehicles that will leave a further negative impact on the auto sector, which is already facing an import ban for improving the balance of payments.
The minister of finance proposed increase in the tax on purchase of vehicles above 1,600cc engine capacity while the advance tax in the case of non-filers of tax returns will be increased to 200% from the existing 100%.
According to Taurus Securities, the advance tax will have a negative impact on Indus Motor and Kia Lucky Motor.
The minister also proposed 2% advance tax on the purchase of electric vehicles (EVs).
He made a proposal to withdraw the sales tax on tractors.
“Increase in advance tax would have a negative impact on Indus Motor and Lucky sales,” Ali Asif of Insight Securities told The Express Tribune.
As car buyers are already paying a large amount in “own money”, now the increase in advance tax will make it further difficult to buy cars as it will lead to a surge in the overall car prices.
Pak Suzuki Motor Company (PSMC), on the other hand, will remain in the sweet spot thanks to its product portfolio as the increase in advance tax is not applicable to the 1,500cc or low capacity cars, he said.
They have proposed the removal of sales tax on tractors that would definitely help agriculture, auto expert Mashood Ali Khan told The Express Tribune.
“It is a positive step for the agriculture sector that has a huge contribution to the gross domestic product (GDP).
” The advance tax on 1,600cc and above cars will hit these segments negatively as prices are already high, so it would hurt the buying power of the middle and upper-middle class, he said.
Non-filers of tax returns have been a big issue and the government should give incentives to help them become filers of tax returns instead of imposing penalties, he said.
“We have seen that the penalties don’t yield any results.
” Nonetheless, “you don’t have a choice so it is understandable that the government is slapping 200% tax on non-filers,” he said.
Still, the government’s endeavours to convert non-filers into filers should not stop as Pakistan has just 2.
2 million tax return filers and this number is too low compared to the total population of more than 210 million.
There was already expectation that the budget would not be supportive or favourable for the market, Mashood said.
“This period is challenging for us; impact of these policies will appear in around three months.
However, the government should have given incentives to the small categories to boost them.
” There will be a huge impact on the profits of listed auto companies after these taxes as the imported raw material is a big part of their production, said Zafar Moti, former PSX director.
Duty on import of electric vehicle (EV) in completely built units (CBU) condition will now be reduced to zero as compared to previous duty rate of 12.
5%, said Umair Naseer Topline.
Government must allow Zero-rated imports for electric scooters, Muhammad Sabir Shaikh Chairman Association of Pakistan Motorcycle Assemblers (APMA) told the ET.
The Punjab government has announced to provide scooties to lady school teachers free of cost.
“Will they provide it by importing?” Scooties, which are not available in Pakistan, should be encouraged to be produced in Pakistan, he said.
So we need a made-in-Pakistan policy on two-wheelers so that investors are incentivized to invest in electric two-wheelers.
Two-wheelers are one of the biggest users of petrol that fuels trade deficit, he said.
If the government gives a policy for electric two-wheelers in Pakistan, the country will benefit a great deal.
Though these should have been included in the budget speech of the finance minister, he can include in the finance bill before it is approved by the assembly.