Hike in custom duty: Cars, tractors prices continue to rise

KARACHI: The prices of locally manufactured vehicles may increase in Pakistan owing to a mini budget increasing the custom duty (CD) on completely knocked down (CKD) units by 1%, whereas input cost and foreign exchange rates have already forced one car manufacturer to increase the prices.

Indus Motor Company (IMC) have increased the prices of cars by Rs 15,000 to Rs 30, 000 per unit, whereas other car and tractor manufacturers are likely to follow suit and the prices of locally manufactured vehicles of 800cc to 1,000cc category is expected to increase by Rs 5,000 – Rs 10,000, 1300cc to 1800cc category by Rs 15,000 to Rs 20,000 while above 1,800cc Rs 25,000 – Rs 35,000 respectively. Tractors’ prices are also likely to increase by Rs 5,000 – Rs 10,000.

“Macroeconomic stability, one of the key objectives of the current government, has been severely compromised while new taxes were being introduced in the mini budget,” said an expert, adding that the inflation rate, which had stabilised for a considerable time, is all set to rise following the announcement of the mini budget, which has been panned by various quarters of the business community.

While the manufacturing sector in Pakistan is already burdened with many externalities such as socio-political unrest, rising utility costs and the recent sudden devaluation of PKR against USD, he said the new taxes would further increase the cost of goods manufactured in Pakistan. He said the domestic auto manufacturing industry is also expected to face a similar ordeal as it struggles to remain competitive, adding that under such scenarios, it is extremely difficult to keep the cost of production constant.

PAMADA Chairman Iqbal Shah said that the current forex market sentiments show that US dollar against PKR is appreciating and set to reach Rs 110 mark, which spells a bad omen for OEMs. “If we recall the previous trend, all the OEMs reduced prices of their vehicles from Rs 10,000 to Rs, 75,000 when US dollar came to the level of Rs 98 in March 2014 after continuous depreciation from the level of 107.5 in November, 2013. Though the exchange rate of PKR against JPY currently is 1.14 as compared to 1.07 in January 2015, however, the Japanese yen has a very small value in cost of cars, since major portion of imported content is purchased from various sources like Vietnam, Taiwan, Japan, Thailand, Malaysia and the payment is done in US dollar only,” he added.

He said the international trends show that this upward adjustment in vehicle prices is normal, considering the unprecedented rise in the price raw material due to exchange rate fluctuation and the overall inflation. “For long, the auto manufacturing sector has been absorbing the increased cost of production, however, the sudden devaluation of rupee, along with additional taxes, has pushed to increase its prices, which were kept stable for more than a year,” he added.

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