Removal of 10% FED on 1,700cc+ cars on cards?

April 4, 2019 (MLN): The government is planning to remove the 10% Federal Excise Duty (FED) it had earlier announced in its Finance Bill of 2019. The duty which was imposed on locally assembled cars with an engine capacity of more than 1,700 cc, if removed, can have numerous benefits for the auto sector.  

In line with certain news reports making rounds, the motive behind this change is to control the decline in volumes sold by car companies, as it was indirectly hurting the revenue earned by government too.

If this plan is materialized, i.e. FED is imposed on cars having an engine capacity of 1,800cc and above, then it’s going to be beneficial for the auto sector as approximately 4% of the sector’s sales are in the 1,800cc and above engine category.

Honda Atlas is expected to highly benefit from this development as Civic has an engine capacity of 1,799cc. More so, Indus Motors may also benefit from this change as it assembles Corolla 1.8L variant.

The imposition of 10% FED on cars with an engine capacity of more than 1,700 cc had earlier sent up a trial balloon for the sector. In response to this policy, the auto companies hiked the prices of their cars to pass on the impact of FED on consumers. Indus Motor Company increased prices of its 1,700cc and above engine capacity vehicles by 10%, whereas Honda Atlas revised up the prices by 11.5% of two of its motor vehicles.

However, it remains to be seen if the auto assemblers will pass on the benefit to consumers or come up with another excuse to maintain inflated prices

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