The current auto policy 2016-21 is set to expire on 30th June this year. Government is reportedly working on formulating the new auto policy that will be taking effect for the next 5 years.
According to the document prepared after the Auto Industry Development Committee (AIDC)’s recent meeting: “Small cars (hatchbacks) have been largely neglected in the past with limited choices & high prices to the customers. The new policy must focus on manufacturing of entry-level cars.”
The government is in the best position to bring the car prices down by reducing various duties & taxes. According to industry sources, nearly 45% of a car price goes to the government in the form of duties and taxes. The government charges duties on imported CKDs (completely knockdown units), plus there is 45% customs duty on import of localized parts and 30% on non-localized parts & an additional 7% duty on the import of other parts. The Federal Excise Duty (FED) is 2.5% for cars up to 1000cc, 5% for cars between 1000cc and 2000cc, and 7.5% above 2000cc plus there is a 17% sales tax as well.
Related: 4 Years of Auto Policy 2016-21
When a customer purchases a car, he is paying around 45% of the total car price to the government, and it is bit higher for bigger cars. The committee noted in the meeting that:
“The prices of vehicles in Pakistan are on the higher side. The government may consider a reduction in Customs duty, removal of Additional Custom Duty (ACD) and Federal Excise Duty (FED) for the entire auto sector in upcoming auto policy.”
If government slashes some taxes & duties, there is a good chance that the prices of cars in Pakistan will come down significantly. However local automakers should also strengthen their ties with local part manufacturers to enhance localization, which will lead to greater cost reduction, price stability, and employment generation, the AIDC document read.