Assemblers Shrewd Enough to Increase Prices Ahead of Budget FY20-21

Toyota and Honda have recently given a massive price push to their local assembled vehicles despite industry operations at a complete halt due to COVID-19 lockdowns and zero sales recorded since 22nd March 2020.

Related: Zero Sales Recorded in April 2020 Due to COVID-19 Lockdowns

Interestingly, we have learned that the government is planning to reduce some duties & taxes in the upcoming Financial Budget 2020-21 in order to revive the ailing auto industry which is already suffering from a 52% decline in sales. Now any cut in duties & taxes will force automakers to bring down prices after the budget is announced, which is exactly why these companies have already announced a superfluous price increase in a time when plants are no longer operational.

Price of Toyota Yaris was increased before the first unit hit the roads

This will only nullify the recent increase in prices and the automakers will be able to sell their vehicles in the existing prices (that of April 2020) even when the duties are reduced in the forthcoming financial budget.

Related: Auto Vendors Warn Layoffs and Salary Cuts Amid COVID-19 Lockdowns

Earlier in April, Indus Motor Company (IMC) increased the prices of Toyota cars in Pakistan by up to Rs 200,000 for Corolla, up to Rs 150,000 for newly introduced Yaris and up to Rs 500,000 for the IMVs. This was followed by Honda Atlas which increased the prices of its cars by up to Rs 120,000 earlier this month. Pak Suzuki is also expected to announce its price revisions ahead of the budget FY2020-21.

Bear in mind assemblers have already pleaded the government for a stimulus package to help the troubled auto industry get back on its track. The demands made are:

  • Import duties on Complete Knocked-Down Units (CKD), should be 10% from current date to December 2020 and no change in duty rate of localized CKD.
  • Removal of FED on locally assembled vehicles and minimum tax u/s 113 should be reduced from 1.5% to 0.25% for manufacturers and their vendors & dealers, due to economic slowdown and stoppage of their business.
  • General Sales Tax (GST) should be reduced by 50% from current date to December 2020.
  • The government should completely withdraw 3% additional sales tax under 12th Schedule of the Sales Tax Act, 1990 and withdraw the increase in Additional Customs Duty (ACD), for imports under SRO 655 and SRO 656.
  • Government should immediately grant blocked refunds of sales tax and income tax and reduce income tax for salaried class by 25% for TY 2019 to benefit them under these crisis situations.
  • As a major portion withholding tax on salaries is already paid, therefore, the balance for last quarter should be exempted and corporate tax should be reduced to 28%.

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