Friday, December 2, 2022

Pakistani Auto Sales Expected to Increase in 2022 due to Tax Relief

Experts predict strong sales in the auto sector in Pakistan in 2022 due to recent duty and tax reductions.

Despite approaching economic issues, experts predict a rise in the following year, as auto sales increased by over 90% in the first 11 months of 2021.

The Pakistan Automotive Manufacturers Association (PAMA) registered automakers sold 210,048 units in the first 11 months, compared to 110,540 units last year.

Analyst Arsalan Hanif claimed that a reduced insurance rate during the year helped boost car sales.

By October 2021, auto finance had grown 44% to Rs346 billion.

“However, the high percentage gain in 2021 was owing to the low base effect.” The pandemic had affected the year 2020,” Hanif added.

To encourage the auto industry and provide inexpensive cars to the public, the government decreased taxes, lowering the FED on all vehicles and the sales tax on cars under 1000cc, resulting in lower car prices and higher sales.

Hyundai Elantra, Sonata, KIA, and Stonic are among the new automobile models launched in Malaysia this year.

In the first 11 months of 2021, two-wheeler volumes grew 30% year on year to 1,707,348 units from 1,317,635 units the previous year. Suzuki sold 29,192 units, Atlas Honda 1,237,631 units, and Yamaha 19,362 machines.

However, market sources suggest sales of the cheapest choice – Chinese 70cc bikes – have fallen this year. Experts attribute it to low-income families’ financial struggles and growing inflation. Three-wheeler sales fell 10% year-on-year to 41,555 units.

Despite growing raw material and freight costs, the rupee’s appreciation initially kept auto prices stable this year. The government also expecting automakers to maintain pricing stable.

In the budget, the government decreased the sales tax from 17.5% to 12.5% for cars under 1,000cc while lowering the FED by 2.5 percentage points. As a result, automakers reduced automobile costs by Rs60,000 to Rs400,000.

With the rupee at a record low, automobile costs rose by 6% for Toyota, 7% for Honda, 10% for KIA, and up to 14% for Pak Suzuki.

Meanwhile, the central bank tightened lending terms to stem the rise in vehicle loans, amid mounting concerns over the current account deficit.

In September, the SBP increased the minimum down payment threshold from 15% to 30%, decreased the maximum vehicle loan repayment term from seven years to five years, and reduced the debt-burden ratio from 50% to 40%. These limits do not apply to cars under 1000cc.

Despite this, experts expect auto sales to rise in the coming year.

Hanif predicted a 20% increase in car sales in 2022, with non-PAMA members contributing roughly 300,000 units to the increase.

PAMA members may sell 15,000 more units in December. Companies like Kia and Changan don’t report to PAMA, but the market estimates their 2021 sales at 25,000 vehicles, bringing the entire industry to 250,000 units.

But Research Foundation Securities CEO Muhammad Awais Ashraf forecasts a 12- 14% increase in car sales.

A 9.75 percent policy rate increases the cost of auto borrowing. It may rise by 100 percentage points next year.

However, he stated that the government may seek economic expansion in the upcoming fiscal year.

“Auto sales may increase in the second half of the year,” he said.

The Finance Act 2021 approved the Automotive Industry Development and Export Plan (AIDEP 2021-26). The new strategy includes many tax breaks for electric and hybrid automobiles.

Local electric vehicle (EV) sales tax reduced from 17% to 1%. Custom duty on selected EV parts is set at 1%. The tariff on imported  EVs has been reduced from 25% to 10%. Hybrid sales tax is now 8.5 percent.

After June 2022, no car will be imported or constructed that does not meet the shortlisted WP 29 regulations. Cars without airbags cannot be constructed or imported into Pakistan.

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