Indus Motor Company that sells Toyota cars in Pakistan and Pak Suzuki have sold the highest number of cars in a month in the first month of the financial year 2021-22. Experts say reduced cars price was the main reason.
The government of Pakistan reduced federal excise duty and additional Customs duty on all cars and sales tax on cars below 1000cc cars were the reasons for the recent car price decrease. It became applicable starting July 1.
The highest change is seen in the Toyota Fortuner VVTi, which has seen a price decrease of Rs400,000. The minimum price change in a car of a Big-Three company (Honda, Suzuki, and Toyota) was Suzuki’s top-selling car Alto at Rs85,000 for its basic model.
“The prices have reduced but it may not be sustainable,” said Senior Research Analyst Ahmed Lakhani. “Therefore, people are at a car buying spree.”
Toyota sold 6,775 units in July, which is its highest monthly sale. Meanwhile, Suzuki crossed 15,000 units for the first time.
Lakhani said that car prices came down after the government reduced duties and sales tax but the prices may increase again. “Because dollar rate touched Rs152 and in few months it has again touched Rs164. Car companies may hike cars price. People know that. Therefore, they were buying when it is low.”
Another Research Analyst Taha Madani was also of the view that reduced cars price was the main research for the record sales. It has happened for the first time in Pakistan when all car companies reduced cars price.
Madani added that the overall conditions were favourable for the auto industry. “Car financing is also cheap at the moment because of lower interest rates. That has also been propelling the auto sales up,” he said.
Why have the car prices been reduced?
The government decided to reduce the federal excise duty on all vehicles even above 1,000cc by 2.5%. Sales tax has been reduced on vehicles below 1000cc from 17% to 12.5%.
Meanwhile, 7% additional Customs duty has been removed on cars below 1000cc and reduced on cars above 1000cc to 2%.
A 2.5% FED was applied on cars below 1000cc; 5% was imposed on cars below 2000cc and above 1000cc; and 7.5% on cars above 2000cc. All these categories will now see a price decline of 2.5%.
This means 1000cc and below cars will have no FED. Cars above 1000cc but below 2000cc will have a FED of 2.5%, and cars above 2000cc will have a FED of 5%.
Initially, Finance Minister Shaukat Tarin had announced that the government has removed 2.5% FED on 850cc cars. Sales tax, too, was reduced from 17% to 12.5%.
The decision was taken to reduce the prices of cars in the entry-level segment. This segment is assumed to entertain middle and lower-income groups.
Later, it was announced that the duty and tax reductions were extended to 1000cc cars. Now finally, FED has been reduced on all cars.
Additional Customs duty has been removed on cars below 1000cc and reduced to 2% to cars above 1000cc. ACD was 7% on all cars.
What about used cars?
A car dealer at Khalid bin Walid Road Shah, Mohammad Shah, said that the used cars’ value will also go down but it will not reflect precisely the change in car prices. “The used car's value is already depreciated,” he said.
“If a new car’s price has been decreased by Rs100,000. The same car of an only model will see a decrease of Rs50,000 on average. But it will also depend on the car’s year of make too,” he said.
Why is there a bigger change in prices of old companies?
The additional Customs duty put by the government was contested by the new entrants, said a company official of a new car company.
“The new car companies that came after Auto Development Policy 2016-21 contested the ACD because the government promised it will not change anything in the industry during the period.
So, when it imposed ACD, we contested it and were not paying it. So, removing ACD doesn’t have any implications on new car companies,” the source explained.
Will the price be reduced for people who booked cars before July?
The people who have booked cars above 1000cc before July will benefit from the reduction in FED, according to a Toyota car dealer.
But according to a Suzuki car dealer, the people will get the benefit of FED reduction but they will not get the benefit of Sales Tax reduction since ST gets paid to FBR when a car is booked.