The Impact of the Budget on Pakistan’s Automobile Industry

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Prior to the announcement of the federal budget the issues that were plaguing the automobile industry were well known among key stakeholders. They were namely two the rupees ongoing devaluation it has loss 44% of its value over the last 18 months. And increase the inflation rate of over nine percent as of May 2019. These factors resulted in the purchasing power of consumers to be affected significantly. Furthermore, interest rates for car financing have more than doubled since January 2018 from 6% to 12.25%.

Given these factors it was no surprise that according to the Pakistan automobile manufacturers association PAMA between July 2018 and May 2019 the last month of FY 18-19 car sales declined to 222,774 units registering a decrease of seven percent compared to the same period in the previous fiscal year. Sales of trucks and buses fared even lower and declined by at least 50%. In fact, the last discernible rise in auto sales of a mere 5% was last seen in July 2018.

All three big players Honda, Toyota, Suzuki passed on the rupees devaluation to customers and their car prices increased by an estimated 15 to 20%. This means that a car priced earlier at two million rupees now costs at least Rs. 2.4 million.

Prior to the announcement of the budget a 10 % federal excise duty FED had been imposed on cars with engine sixes of 1700cc and above. To optimize revenue generation, the government has proposed applying FED to cars of all engine capacities and divided them into 3 categories: zero to 1000cc (proposed tax 2.5%), 1001-2000cc (five percent) and 20,01cc and above (7.5%) Needless to say, this will result in car prices increasing even further, and if sales numbers plummet, it is likely that current and proposed entrants will question whether or not Pakistan is worth investing in.

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