PAAPAM concerned over hike in GST on automobiles

F.P. Report

KARACHI: The Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) has shown concerns on the proposed hike in sales tax from 18% to 25% on automobiles having ex-factory price of 40 lakh and above.

In a unified stance, PAAPAM’s leadership, comprising of Chairman Abdul Rahman Aizaz, SVC Mumsahd Ali, and VC Taufique Sherwani are of the opinion that previous move to increase ST to 25% on 1400 cc cars along with other taxation measures and devaluation of Rupee have already resulted in drop of automobile sales to just 30% of 2021-22 levels.

This sharp decline has not only resulted in duress to the part making sector and employment thus generated but also resulted in lesser absolute tax collection from the sector.

Highlighting the current challenges like souring energy prices, currency devaluation of over 160% in just 6 years, exceptionally high financing rates, and over 40% taxation on every car sold have already curtailed sale to just 100,000 Cars/SUVs against the installed capacity of 500,000 vehicles.

PAAPAM’s leadership emphasized that increasing GST to 25% for small size sedans will push the prices beyond purchasing power of country’s middle class. Such a move will not only hurt the customer but will also yield lesser collection of tax due to anticipated lesser sale.

It is to be noted that automobile production and sales have been on a downward trajectory for the last five years. Automobiles are demand-elastic items whose sales would further go down with a jump in prices and the GST rise would prove counterproductive.

Experts said that the Economic Coordination Committee’s decision to increase the general sales tax on locally produced vehicles will result both in a drop in volumes as well as revenues, as it is highly unlikely that a hike in GST would additionally generate revenue.

The measure would only hit the economy, enhancing negative sentiments for the consumers and losing investors’ confidence in Pakistan, fearing a rise in prices of locally assembled cars which are already marred by hyperinflation and slowdown.

PAAPAM’s leadership emphasized that increasing GST to 25% for small size sedans will push the prices beyond purchasing power of country’s middle class. Such a move will not only hurt the customer but will also yield lesser collection of tax due to anticipated lesser sale.

They urged the authorities not to further burden the local industry by raising the GST. This proposal to enhance the GST was earlier turned down when it was discussed with industry representatives.

PAAPAM requested for dialogues with government before taking any decision on imposing further taxes on automobiles.