When the future of Pakistan’s auto industry looks bleak and the local car assemblers stand at a critical juncture, another increase in general sales tax (GST) to a staggering 25%, previously 18%, is stirring up serious concerns.

The auto assemblers are skeptical about the positive outcomes of such a tax hike. They argue that it’s unlikely to generate the projected revenue of Rs. 4 billion. Instead, it’s feared that this move will adversely affect the economy, exacerbate negative sentiments among consumers, and shake investors’ confidence in Pakistan.

PAMA’s Verdict

Abdul Waheed Khan, the Director General of Pakistan Automotive Manufacturers Association (PAMA), highlighted these concerns in a letter to Caretaker Finance Minister Dr Shamshad Akhtar. He pointed out that such a hike in GST would inevitably lead to a rise in prices of locally assembled cars, when used cars are already replacing high priced locally assembled new cars.

Moreover, the decision seems to create an imbalance by keeping taxes unchanged on imported used cars. This disparity has resulted in used cars flooding the market compared to new cars (CKD),  capturing a significant share and causing losses in foreign exchange and government revenue.

 Appeal for Reconsideration

Mr. Waheed urged the finance minister to reconsider the decision, emphasizing that it would only burden the local industry further. Interestingly, this proposal had been rejected earlier during discussions with industry representatives and vendors.

Meanwhile, auto dealers are bracing themselves for a significant sales drop in locally assembled vehicles. With the anticipated price hikes due to the GST increase, buyers are expected to turn even more towards used cars, exacerbating the situation for new cars sales.

The repercussions of this decision are already being felt, with a sharp decline in CKD imports and a significant drop in auto sales. High-interest rates coupled with rising prices have further dampened consumer enthusiasm for purchasing new vehicles.