Attractive future in Pakistan's auto sector - need of policy change.

Byline: Syed Fazl-E-Haider

Challenges and opportunities in Pakistan Islamic Banking

Pakistan's auto sector faced a slump during the calendar year 2019 due to massive devaluation of rupee, taxation, skyrocketing inflation and high interest rate. The auto sales plunged 34 percent to 175,611 units in the first 11 months of 2019 compared to 235,491 units sold in the same period of the previous year. The prevailing dismal situation in the auto industry, some car manufacturers like Indus Motor Company and Honda Atlas Cars Pakistan introduced non-production days last year.

Last year, the rupee depreciated 35 percent against the US dollar that mainly hit the auto sales in the country. The sector was further hit by inposition of taxes by federal government including federal excise duty (FED) and additional customs duty. The government imposed 2.5 percent FED on vehicles having engines of less than 1,000cc, 5 percent on engines ranging between 1,000cc and 2,000cc and 7.5 percent on engines of more than 2,000cc. The government also levied additional customs duty, at 5 percent on raw material.

A major reason behind decline in sale of cars was the high interest rate that made car financing tougher and discouraging people from buying cars. In the first five months of current fiscal year 2019-20, total sales came in at 55,407 units compared to 100,997 units in the corresponding period last year, which meant a 45 percent decline.

Some observers believe that reduction in taxes imposed on locally-assembled cars in the budget for the current fiscal year will not lift the gloom in the country's automobile industry. They believe that the auto sales have slumped mainly on account of the ongoing drive to document the economy and not owing to the rising prices of vehicles. According to the Pakistan Automotive Manufacturers Association (PAMA), the automakers sold 43 percent fewer cars during the first half of the current financial year to December from a year ago. The industry sold 59,097 vehicles during this period, compared to 104,038 vehicles sold last year.

Under the new auto policy of the present government, 18 new car manufacturing plants had been set up, five of which were on production line now. The competitors include Chinese and Korean companies. The market prices are to be determined by the demand-supply factor and the government cannot fix the rates under the policy. The officials hope the prices of cars will decrease as the production goes beyond the...