Suzuki Cultus may get cheaper by Rs150,000

After announcing a reduction in taxes and duties on cars below 850cc in the budget presentation recently, the government is now pondering to reduce duties and taxes on 1000cc cars such as Suzuki Cultus, Wagon R, Kia Picanto, United Alpha, and Karvaan Plus.

According to information received from a source in the government, 1000cc cars will see similar duties and sales tax reduction given to the 850cc below cars.   

Pakistan’s Finance Minister Shaukat Tarin announced a reduction in sales tax from 17% to 12.5% and removed 2.5% Federal Excise Duty (FED) in the budget for 850cc vehicles.

Later Tarin announced in parliament that duties and taxes will also be reduced for cars below 1000cc without specifying which duties and taxes and by how much may be reduced.

Also read: Pakistan’s auto policy to focus on production of ‘cheap’ cars

According to a source in the government, Additional Customs Duty and FED will be removed while Sales Tax would be reduced 17% from 12.5%.

“It has been planned but the government is yet to issue the SRO (Statuary Regulatory Order),” the source said.

According to Arif Habib Research, the expected reduction in sales tax and FED, the top variant of Suzuki Cultus, which is priced at Rs2,130,000, is Rs149,100. The change will bring the price of the car down by Rs2 million. Kia Picanto’s automatic price may get reduced by Rs143,430 if the government chooses to reduce the duties and sales tax.      

Research Analyst at BMA Capital Taha Madani says his calculation estimates a change in the price of Cultus’s top variant at Rs132,000 expecting the government would reduce the sales tax and FED.             

However, the analyst says the companies such as Suzuki may not choose to pass on the impact of the reduction in cost after ACD is removed. It is because the companies would want to improve their profitability.

“If you see Suzuki’s profits, it's low at around 6%. It would certainly want to improve it. Normally car companies do it by increasing car price. But now their margins may improve if ACD is removed,” Madani explained.

ACD is imposed on imported parts of cars. Different components have different ACD.     

“The new entrants rejected the ACD when it was imposed after the Auto Development Policy 2016-21,” an official of a new car company that came after getting green-field status under ADP2016-21 said.

“ADP2016-21 clearly stated that there would be no changes in the duties and taxes for at least five years. So, ACD was disputed and new car companies were not paying it. So, removal of ACD will only impact Suzuki,” the source explained.