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Impact of Budget 2024-25 on Locally Assembled Hybrid Cars
  Jun 14, 2024     AASMA MAJiD  

Impact of Budget 2024-25 on Locally Assembled Hybrid Cars

The newly proposed fiscal budget for 2024-25, introduced by Finance Minister Muhammad Aurangzeb, has brought significant changes, especially in the local car industry. Within just a day of its announcement, the effects of new tax policies have already started impacting the sector.

The Shift in Tax Policies

Initially, there were rumors suggesting that the government would impose new taxes on imported used cars while maintaining tax exemptions for electric and hybrid vehicles. However, the actual budget provisions turned out to be quite different, affecting even locally assembled hybrid electric vehicles (HEVs), with the exception of fully electric cars.

The Impact on Local Hybrid Car Industry

The major turning point came with the unveiling of the "Finance Bill 2024". According to this bill, clause 73 of the 8th schedule from “The Sales Tax Act, 1990,” which allowed the government to collect an 8.5% general sales tax on locally assembled HEVs, has been removed. This change reclassifies CKD (Completely Knocked Down) HEVs into the general category of vehicles, subjecting them to a 25% GST.

This significant tax hike means that locally assembled hybrid cars will become more expensive. This is quite contrary to the finance minister's budget speech where he mentioned supporting the local industry, yet the new tax measures suggest otherwise.

Changes in Electric Vehicle Taxes

Additionally, the budget proposes to remove tax exemptions for electric cars priced above $50,000. The finance minister justified this by stating that individuals who can afford these high-end electric vehicles should also be able to pay the corresponding taxes and duties.

New Withholding Tax

The new budget also changes the withholding tax system for new cars. Previously, this tax was based on the engine capacity, but it will now be calculated based on the invoice price of the vehicle, applicable to cars up to 2,000cc.

For example, if you recently purchased a Suzuki Wagon R in Pakistan for Rs. 3.8 million, the old registration fee would have been Rs. 20,000. Under the new budget, the registration fee for the same car could increase to Rs. 38,000, indicating a substantial rise.

Potential for Reversal

Local manufacturers are hopeful that these new tax measures might be reconsidered and reversed soon, as they believe there could be a mistake in the policy implementation.

Conclusion

The budget for 2024-25 has introduced several changes that have stirred the local car industry, especially the segment of locally assembled hybrid electric vehicles. With the removal of tax exemptions and the introduction of higher taxes, the prices of these vehicles are expected to rise. The new withholding tax system based on invoice price rather than engine capacity adds to the financial burden on car buyers. While local manufacturers remain optimistic about a possible policy reversal, the current situation poses significant challenges for the industry.

What are your thoughts on the government’s new policies regarding CKD HEVs? Share your opinions in the comments section.

AASMA MAJiD