Before and during the pandemic the automobile industry of Pakistan has remained mostly unstable. With high prices, delayed delivery, missing essential safety features and extortionate premium, the automobile industry has faced great criticism over the years. Less demand leading to lower economies of scale combined with higher tax rates makes it difficult for automobile manufacturers to reduce prices.
Automobile industry has the potential to be a very profitable industry, but due to already low purchasing power of people and high prices affording a car is a gritty task. Last year’s reduction in interest rate to 7% has to great extent supported the purchase of automobiles with auto financing by banks reaching its all time high with Rs. 297.5 billion. To further strengthen the automobile industry the government has proposed to further announce deduction of Federal Excise Duty (FED) and Additional Customs Duty (ACD) to reduce the prices of cars to make them more affordable increase their demand. In response to this companies have started reducing the price of their vehicles so that the benefits from this tax cut can reach the end consumers.
However, the extent of benefit this tax cut will actually bring remains yet to be seen. Although this proposed tax cut will reduce the prices of car parts, it does not impact the tariff imposed on raw material deterring local vendors from boosting production. As per reports, the new Automotive Industry Development and Export Policy is expected to address other issues in the automobile industry also. Issues such as late delivery, manufacture of safety features, high premiums, local assembly of environment friendly hybrids, job creation and others are expected to be addressed through this policy