The Pakistan Automotive Manufacturers Association (PAMA) has recently raised concerns about the potential imposition of the Withholding Tax (WHT) on locally produced automobiles. Reports suggest that the federal government is considering a shift in the basis for calculating WHT from engine capacity to invoice price in the upcoming budget.

This proposed change has sparked apprehension within the already struggling auto industry, prompting PAMA to caution against the detrimental consequences that could ensue. In a letter addressed to the Chairman of the Federal Board of Revenue (FBR), PAMA highlights the negative impact this shift would have on vehicle sales and calls for the retention of the current engine-based WHT system.

The Potential Ramifications

PAMA emphasizes that altering the basis of WHT from engine capacity to invoice price will inevitably lead to an increase in the amount of tax imposed on locally produced vehicles. Consequently, this would result in increased retail prices for consumers. The association expresses concern over the negative repercussions such a change could have on the sales of domestically manufactured automobiles. With the auto industry already grappling with various challenges, including import restrictions and economic uncertainties, the proposed tax modification adds another layer of complexity and potential hardship.

PAMA’s Appeal

In its letter to the FBR, PAMA urges the authorities to reconsider the proposed WHT alteration and emphasizes the need to reduce the current engine-based tax on vehicles. The association highlights the adverse impact of import restrictions and the subsequent decline in the industry during the COVID-19 years of 2019-20 and 2020-21. However, it also points out that the auto sector had shown signs of revival during the following fiscal year, 2021-22. Unfortunately, the industry experienced a sharp downturn in 2022-23, primarily attributed to import restrictions and other macroeconomic challenges.

Looming Losses

PAMA underscores the magnitude of the losses incurred by its members, reaching billions of rupees. The restrictions on imports, coupled with skyrocketing inflation and other macroeconomic factors prevailing in the country, have created a difficult business environment for automotive manufacturers. These losses not only affect the companies themselves but also have a cascading impact on the overall industry, including the workforce, suppliers, and dealerships.

The proposed shift in the basis for calculating Withholding Tax on locally produced automobiles has raised concerns within the auto industry. PAMA’s warning about the detrimental consequences of such a move highlights the fragility of the sector, which has already been grappling with challenges in recent years. As the government prepares to present the upcoming budget, careful consideration must be given to the potential ramifications of this tax alteration on the struggling automotive sector. It is crucial to strike a balance that supports the industry’s growth and sustainability while ensuring fair taxation policies.