The auto industry in Pakistan is facing a new wave of challenges as the government considers revising withholding taxes and other duties on domestically manufactured vehicles. Abdul Waheed Khan, the Director General of the Pakistan Automobile Manufacturers Association (PAMA), expressed deep concern about these potential changes in a letter to the Secretary of Industries. Khan emphasized the existing difficulties the industry is already grappling with and warned that implementing the proposed changes in the 2023-24 fiscal year budget could have severe consequences.
The auto sector in Pakistan is currently plagued by economic fluctuations, rising production costs, and fierce competition from imported vehicles. Khan’s letter highlighted the distress of the industry, emphasizing that additional burdens resulting from the proposed taxation alterations would only worsen the situation. He urged the government to reconsider the potential repercussions and find sustainable solutions.
If the proposed changes are enacted, local automobile manufacturers and dealers will likely face increased financial pressure, leading to production declines, layoffs, and a further slowdown in the industry. Moreover, it could discourage potential investors and hinder the industry’s ability to attract foreign investment, ultimately impacting its growth and competitiveness.
Currently, withholding tax is based on the engine capacity of an automobile under section 231B of the income tax ordinance. The tax amount is already levied on each filer and non-filer buyer of an automobile. For engine capacities ranging from up to 850CC to 1000CC, filers are required to pay Rs10,000 in withholding tax, while non-filers face a higher rate of Rs30,000. Similarly, for engine capacities between 1001CC and 1300CC, filers need to pay Rs25,000 in withholding tax, whereas non-filers are subject to a higher rate of Rs75,000. The rates continue to increase with larger engine capacities.
The government is reportedly considering charging withholding tax based on the invoice price basis instead of the engine capacity basis. Khan strongly opposes this proposal, as it would substantially increase withholding tax payments, inevitably raising sale prices and adversely affecting sales. He also called for a reduction in the current engine-based withholding tax amount.
Pak Suzuki Motor, the largest manufacturer of passenger cars and light commercial vehicles in Pakistan, highlighted its struggles in a separate statement. Shafiq Ahmed Shaikh, the Head of Public Relations at Pak Suzuki Motor, revealed that the company suffered massive losses of 12.9 billion in the first quarter of the current year due to economic uncertainties. The company has also been forced to observe numerous “No Production Days” each month throughout the year. The dire economic and business situation has also affected dealers and vendors, with some already closed and others on the verge of closure.
Muhammad Sabir Shaikh, Chairman of the Association of Pakistan Motorcycle Assemblers (APMA), criticized the withholding tax on sales and called for its removal on motorcycle dealers with an annual turnover above 100 million. Shaikh appealed to the federal government to eliminate this tax in the Budget 2024. A representative from Suzuki echoed the sentiments, requesting the government to refrain from imposing new duties and taxes in the upcoming federal budget, especially on vehicles up to 1000cc, which are affordable for the masses.
Khan further argued against changing the long-standing practice of levying withholding tax based on engine capacity to an invoice price basis. He emphasized that such a change would not only negatively impact sales but also undermine the simplicity and convenience of the tax levy. The PAMA DG strongly
