Increase in Sales Tax by 25% on locally Manufactured Cars
Increase in Sales Tax: With the start of a new calendar in 2024, there was hope that this year would be different from previous years. After all, the Pakistani car industry is reeling from low sales due to high prices and car finance costs, among other reasons. Major car manufacturers are hoping that post-election Pakistan will see a government that will pursue people-friendly policies. However, now, in a rude awakening, the caretaker government has raised the general sales tax on cars from 18% to 25% in a bid to raise revenue. This will further increase the price of cars in Pakistan and reduce their sales in the future.
In this blog, we will list the cars most likely to be affected by this upgrade and the cars most likely to be affected. But first, let’s talk a little about this latest news.
FBR Proposal
The Federal Board of Revenue (FBR) has proposed to the Economic Coordination Committee (ECC) of the Cabinet to revise the rate of sales tax on locally manufactured/assembled vehicles. This proposal, titled “Rationalization of the Enhanced Rate of 25% Sales Tax on Manufactured / Vehicles Installed (PCT87.03),” was approved by ECC on February 14, 2024.
Increase in Sales Tax from 18% to 25%
It is important to note that the previous sales tax rate of 18% still applies to certain vehicles. However, a new sales tax of 25% will be imposed on locally manufactured vehicles below 1,400 cc and priced above Rs. 4 million. Vehicles that do not meet these criteria will continue to be taxed at the standard 18%.
Locally Made Vehicles With Engines Smaller Than 1,400cc and Prices Exceeding Rs. 4 Million
The below-mentioned cars fall into this category, and we can expect their prices to increase in the near future:
- Proton Saga 1.3L Ace A/T
- Honda City 1.2L M/T
- Honda City 1.2L CVT
- Toyota Yaris GLI MT 1.3
- Toyota Yaris GLI CVT 1.3
- Toyota Yaris AERO CVT 1.3
- Toyota Yaris ATIV CVT 1.3
- Toyota Yaris ATIV MT 1.3
- Suzuki Cultus Auto Gear Shift
- Suzuki Swift GLX CVT
- Suzuki Swift GL CVT
- Suzuki Cultus VXL
- Suzuki Swift GL Manual
As mentioned above, not all vehicles will be subject to the tax increase. We will now list the cars that will continue to attract the sales tax rate of 18 percent.
- Suzuki Cultus VXR
- Suzuki WagonR VXL
- Suzuki WagonR VXR
- Suzuki Alto VXR-AGS
- Suzuki WagonR VXL-AGS
- Suzuki Alto VXL-AGS
- Suzuki Alto VXR
- Suzuki Alto VX
- DFSK Prince Pearl
Conclusion
Increase in Sales Tax: This measure, aimed at boosting government revenue, will have a significant impact on consumers struggling with inflation and the local car industry, which is also suffering from declining sales. Compared to 2022, car financing fell 26% in 2023, from $337 billion to $251 billion as of December 2023. Also, there is a real or perceived perception that cars in Pakistan are cheap and of poor quality. Among other things, many things went wrong when the government started the new year by increasing the car sales tax.
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