ST reduction, FED removal on cars below 1050cc vehicles recommended: PIDE

June 17, 2021 (MLN): Acknowledging the budget announcement of a reduction in sales tax and federal excise duty on cars below 850cc, the Pakistan Institute of Development Economics (PIDE) has recommended the government to extend the same benefits for cars below 1050cc in order to help the general public.

“The government should expand the scope of this relief for vehicles up till the engine capacity of 1050cc. This will help bring down prices of all small vehicles being locally assembled, while also extending benefit to multiple manufacturers,” the PIDE said in its budget commentary.

Currently, there are only three manufacturers in the country assembling a total of five-passenger vehicles below 850cc. The data shows that limiting the relief to vehicles up to 850cc provides a very small range of option to choose from to the general public.

Three of those models are produced by Suzuki including Alto (658cc), Bolan (796cc), and Ravi (796cc). The remaining two: Bravo (796cc) and Pearl (796cc) are assembled by United and Prince respectively.
“Out of the above five vehicles mentioned, only three are passenger cars that could be used primarily for family use,” said PIDE Staff Economist Mohammad Shaaf Najib who authored the commentary.

“Among the other two, one (Suzuki Ravi) is a light commercial vehicle while Suzuki Bolan is a mini multi-purpose vehicle that can and is often also used for commercial use, including transport services. In addition to the small range of passenger vehicles available in the range to consumers, this also provides an unfair advantage to one manufacturer with three vehicles in the under 850cc category.”

PIDE recommended that the government “instead of limiting the recently-awarded tax relief for vehicles up to engine capacity of 850cc, the government should expand the scope of this relief for vehicles up till the engine capacity of 1050cc.

The move will increase competition in small vehicles manufacturers as consumers will have a greater range of vehicles to choose from as per their budget. Moreover, consumers whether for family or commercial use will have more than one option in all vehicle categories i.e. passenger vehicles, light commercial vehicles (LCVs), and Multi-Purpose Vehicles (MPV).

If the government extends the limit to vehicles with engine size up to 1050cc for reduction of sales tax to 12.5 percent and removal of FED, consumers can choose from a total of 14 vehicles, it added.

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