The Pakistan Automotive Manufacturers Association (PAMA) has strongly criticized the recent decision made by the Economic Coordination Committee (ECC) to raise the sales tax to 25 percent on locally manufactured vehicles, likening it to a fatal blow.

In a letter addressed to Caretaker Finance Minister Dr. Shamshad Akhtar, PAMA expressed grave concerns over the ECC’s decision, which reportedly came into effect on February 14. This decision applies to vehicles with engine capacities of 1400 cc and above or priced at Rs. 4 million and above.

PAMA emphasized that this decision specifically targets locally produced passenger cars, inevitably leading to an escalation in market prices already burdened by rampant inflation. The association warned that this move would severely dampen demand, stating it metaphorically as “killing someone dead”.

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Drawing attention to a five-year comparative analysis of automobile production and sales within the country, PAMA underscored a consistent decline in both metrics. Given that automobiles are highly responsive to changes in prices, the increase in sales tax would exacerbate this downward trend, rendering it counterproductive.

Furthermore, PAMA pointed out a disparity in taxation policies, noting that while taxes on locally manufactured cars continue to rise, taxes on the import of used cars remain unchanged. This discrepancy has led to a surge in the market share of used cars from 10 percent to 30 percent, resulting in foreign exchange losses and a decline in legitimate government revenue.

Expressing skepticism about the revenue-generating potential of the measure, PAMA argued that it is likely to result in reduced sales volumes and subsequent revenue losses. Moreover, the association cautioned that such measures would negatively impact the economy, diminish consumer confidence, and undermine investor trust in Pakistan’s automotive sector.

In light of these concerns, PAMA urged the finance minister to reconsider the decision and withdraw the increase in sales tax on locally produced vehicles.

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