while analyzing the automobile industry of Pakistan, the CEO of KIA Lucky Motors said that if the government reduces the taxes on cars, there is a high probability of boosting the demand and production of vehicles in the local sector.
The CEO of KIA Lucky Motors Pakistan, Asif Rizvi believes that the local automobile industry has a great potential of growth provided a low amount of taxes are imposed on the vehicles produced in the country. Currently, the economic activities in Pakistan have frozen due to uncertainty prevailing in the market on the back of such a massive depreciation of rupee against the US dollar. The demand for cars has dropped significantly, and hence the auto manufacturers are facing an immense challenge ahead of them. The sales have declined so drastically in the past few months, thus forcing the automakers to halt their production due to piled up inventories. Honda Atlas shut down their plant for more than ten days in the month of July and similarly, Toyota Indus has already revised their working days to five, every week. Such a terrible situation it has been for both the existing auto giants and new players who just entered the local market. In this situation, Rizvi suggested the government to reduce taxes on cars to sustain the sales and keep everybody interested in such a potential-filled sector.
The government, in its recent move, imposed Federal Excise Duty (FED) on all types of cars categorized into three slabs with a tax rate ranging from 2.5% to 7.5%. This particular taxation has been widely criticized by the entire industry and expects the government to waive it off to gain the lost momentum. The prices of cars have so sky-rocketed that it’s nearly impossible for consumers to buy a new one. KIA Lucky motors are the first among the new players who entered the auto sector of Pakistan with a Greenfield status ever since the government announced its tax incentive-based Auto Development Policy (ADP) 2016-21. KIA Lucky motors have installed its assembly plant with a hefty investment of $175 million within a record period of 18 months. It has the capacity of producing 50,000 units. The new entrant is also paying a high amount of taxes on the account of its completely knocked-down units (CKD), customs duties and FED which is applied on all cars. As a result, the prices are too high, leaving behind low demand in the market. Unlike other countries, the consumers in Pakistan pay an extra-ordinary amount of 30-38% taxes on the purchase of a car. It means that on buying a car worth 2 million, the portion of taxes amounts to Rs.6-7.6 lacs. The auto industry is such a huge contributor in collecting taxes and should be properly handled by the government by formulating consistent policies. This particular sector is linked to a chain of industries including engineering, auto parts, plastic, rubber, etc. and any sort of impact on the auto industry spreads across all of them uniformly. Strengthening the auto sector would certainly boost up these industries as well and create job opportunities in the market. With a single job opening in the auto sector, as many as 100 jobs are created in the auto parts industry.
This is such a crucial time for the auto industry as several new players have arrived with their huge foreign investments. The government also granted Greenfield status to several European and Korean auto giants. The car sales in Pakistan have also shown a growth of 15% in the last five years, which indicates the demand for cars in the country. At the moment, the high amounts of taxes are holding back the consumers from buying cars. Currently, the installed production capacity stands at 350,000 units per annum, which would be enhanced to 600,000 units as the demand and production of vehicles are expected to rise to 500,000 units by the end of 2025. If consistent policies are formulated to ensure the growth of the sector, this demand could even grow to almost 1 million units by the year 2030.
KIA Lucky Motors has recently introduced its highly-anticipated 2000 cc powered Sportagemodel in the country. The company’s CEO believes that this car will leave its impact on the local industry as it fills the gap between vehicles ranging from 1800cc to 2700 cc engine displacement category. Introducing a model in this bracket would undoubtedly add more options for the consumers and lift this segment of cars comprehensively with the enhanced competition.
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