The year 2019 began on a negative note for the established players in the automobile market. sales were lagging mainly due to the ban imposed in June 2018 by the previous governments on car purchases for non – tax filers unfortunately, rather than encouraging prospective buyers to become tax filers, the ban resulted in car sales taking a hit; many non – filers opted to buy used cars simply asked a tax filer they knew to by one for them after paying a premium.
Furthermore, most production costs increased considerably, mainly because of the rupee’s depreciation.
Consequently, gross profit margins declined despite the fact that many automakers had increased the prices up to four time in 2018. In fact, according to the Pakistan Automotive Manufacturers Association (PAMA), car bookings for the three big players (Honda,Suzuki and Toyota) declined by an average of 35% in 2018 compared to 2017.
According to the mini- budget announced on January 23, 2019, the non- tax filer ban will no longer be applicable on 1300cc cars (and lower); however, non –filers will have to pay higher taxes (Rs 60,000) than filers (who have to pay Rs 20,000). The ban on the higher cc segments will remain in place.
Suzuki is expected to benefit the most from this relaxation as they manufacture the largest variants in the under-1300cc category , as well as Toyota , which has two models within the 1300cc category: the GLI and XLI corolla. Honda’s city has a 1339cc engine and they have petitioned the government to increase the allowance to 1339cc.
Furthermore, a bill announced in the mini-budget stated that import duty for cars with engines over 1800cc will increase from 20% to 25%. This is likely to deter the import of luxury cars and increase the sales of locally-assembled cars.
By Mazhar Mohsin Chinoy