Car sales soar prior to imposition of taxes

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Car sales soar prior to imposition of taxes

In spite of all limitations, passenger car and jeep market increased to an all-time highest of 28,379 units in June 2022. This was an increase of 24% in comparison to the month before and 106% higher than the same month one year ago. The substantial increase in supply of four-wheelers to customers was seen across all categories and is led by least expensive jeeps (SUVs which are sporting utility vehicles) as well as the most affordable vehicles (below 1,000cc capacity engine capacity).

“Sales rose prior to the imposition of two new taxes that are designed to slow down (import-led) automobile demand , with effective from July 1, 2022…and most likely hike in prices of cars during the month of July” Ismail Iqbal Securities’ analyst Muqeet Naeem told reporters while speaking with The Express Tribune on Friday. In its recent attempt to limit the sales of cars and imports authorities announced the 10th of June 2022 the imposition of 1percent capital value tax (CVT) on vehicles with a capacity of more than 1,300cc as well as the doubled advance tax on vehicles of 1,600cc and more, starting July 1.

In the prior fiscal year, 2021-22 (ended June 30th 2022) the number of vehicles sold increased 54%, resulting in an all-time high of 279,267 units, compared with 181,397 units from the prior fiscal year according to the brokerage house citing the data from the Pakistan Automotive Manufacturers Association’s (Pama) information. The previous record was 258,792 units , which was recorded in FY18, he said. Naeem claimed that “the auto sales have increased (in FY22) however the burst of the bubble will be inevitable during the budget year (FY23) because of the imposition of new taxes and a predicted increase in car prices and an increase in the interest rates on auto financing through banks…all during July.”

“The new issue that automakers are facing is the approval prior to the arrival of SBP needed to import kits that are CKD (completely destroyed) kits. This causes issues on the production side, and can affect the delivery time of cars already scheduled,” he said. “Indus Motor has shut down the booking process for more than an entire month, while Kia as well as Pak Suzuki Motor Company have also closed booking for a few of their vehicles. We are confident that the companies will begin booking shortly after the announcement of a price increase.”

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The data breakdown indicates that the number of cars sold below 1,000cc engines increased by 41 percent to reach 8,703 units June as compared with May. Sales of SUVsand jeeps rose 31 percent to 4,832 units during the month. Sales of cars with a capacity of 1,000cc jumped 30 percent to 4,602 units the sales of 1,300cc or above engine vehicles increased by up at 10,242 units. The record-breaking sales of cars in FY22 was primarily due to the lower taxes on sales as well as federal excise duty on all vehicles and the lower rates of interest at the beginning this year increased sales through auto financing.

In the following year, the government changed the tax incentives through an interim budget in January 2022. However the trend of growth continued because of a longer lead time. The SBP also updated its prudential rules in September 2021, which tightened the requirements for auto financing. This was further limited by June 20, 2022. Recent data for auto loans showed a tiny increase of 0.4 percent month-to-month. The average rate of growth for auto financing from November 2021 until the end of May 2022 (post-regulations) was just 1.1 percent, when compared to the average monthly increase of 3% from July 2020 until October 2021.

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