Government reduces taxes on cars below 850cc
The government will reduce taxes and duties in the fiscal year 2021-22 on cars below 850cc engine size, which are assembled in Pakistan. This will affect the prices of Suzuki Alto, Ravi, Bolan, Prince Pearl, and United Bravo.
The change in the tax regime excludes imported used cars in the category such as Mira, Wagon R, Alto, and N-One.
Finance Minister Shaukat Tarin announced these details while presenting the budget on Friday.
The Federal Excise Duty (FED) of 2.5% has been removed and Sales Tax has been reduced to 12.5% from 17% on cars below 850cc, also called entry-level cars.
“The cars below 850cc may see a price decrease of around 5% or 6%,” said an auto sector analyst Mashood Khan. “This will be a good price cut for people who buy cars in this category.”
A 6% change in the price of Alto’s top variant will amount to nearly Rs100,000.
Taha Madani, a research analyst at BMA Capital, said that the buyer will get direct benefit from the reduction in sales tax and withholding tax (WHT).
“The top Alto variant is priced at Rs1,633,000. The change in sales tax will directly reduce its price by 63,000. Then WHT has also been removed, which are Rs7,500 for filers and Rs15,000 for non-filers,” Madani said.
He added that the Value Added Tax has also been reduced and FED and VAT will reduce the cost for the company.
“The companies may not pass the impact of FED and VAT completely as they would also want to increase their profitability for shareholders,” he said.
Another Senior Research Analyst Ahmed Lakhani said that the impact of the tax and duty change would amount to around Rs100,000. But he is skeptical that the car company will be passing on the complete reduced cost amount to buyers.
Suzuki’s spokesperson said that the company is waiting for complete details to share details about the change in car prices.
Pak Suzuki’s stock price increased significantly last Friday. It faced an upper-lock after its price increased by 7.5% from Rs310 to Rs333 within a day.
When a stock price increases or falls significantly, by up to 7.5% or Rs1 for penny stocks (stocks below Rs20), then their trade is suspended to avoid market panic.