PAMA calls for reversal of 25% sales tax hike on locally manufactured cars

ISLAMABAD: The Pakistan Automotive Manufacturer Association (PAMA) has urged the Caretaker Finance Minister to withdraw the 25 per cent sales tax increase on locally manufactured vehicles.

In a letter addressed to the federal Minister for Finance, Revenue, and Economic Affairs, PAMA emphasised the need to reconsider the decision to increase the sales tax on locally manufactured vehicles.

The letter highlights that the Pakistan Automotive Manufacturers Association represents these local manufacturers. It refers to the Economic Coordination Committee (ECC) meeting held on February 14 and the decisions reported in the media.

One of the decisions reportedly made during the ECC meeting is to raise the sales tax to 25 per cent on locally produced vehicles with 1400 cc and above or priced at Rs4 million and above.

This decision, if implemented, would exclusively impact locally produced passenger cars, leading to increased prices in a market already burdened by galloping inflation, negatively affecting demand, and causing significant disruptions.

Enclosed with the letter is a five-year comparative chart illustrating the production and sales of automobiles in the country, revealing a continuous decline in both production and sales.

Automobiles are considered demand-elastic items, and any increase in prices would likely lead to a further decline in sales. Therefore, the proposed increase in the sales tax is deemed counterproductive.

The letter also points out that taxes on locally produced cars have seen an increase, while taxes on the import of used cars have remained unchanged, creating a situation of negative protection for locally made cars.

As a result, the market share of used cars has risen from 10 per cent to 30 per cent, causing a loss of foreign exchange and legitimate revenue for the government.

Expressing surprise at the claim that the measure will generate additional revenue of PKR 4 billion, PAMA is sceptical about this outcome. There is apprehension that the measure may lead to a drop in volumes and subsequent revenue decline.

The letter concludes by emphasising that the proposed increase in the sales tax rate to 25 per cent would only harm the economy, create negative sentiments for consumers, and undermine investor confidence in Pakistan.

PAMA earnestly requests reconsideration and withdrawal of the proposed sales tax increase.

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