In the fiscal year 2022-23, the federal government proposes a 2.5 percent increase in the Federal Excise Duty (FED) on all car imports. The decision is seeking approval from the federal cabinet.
According to a top Federal Board of Revenue (FBR) official, significant changes to Chapter 87 of the Pakistan Customs Tariff will be included in the upcoming budget.
He also stated that imports of sports cars, minivans, off-road vehicles, golf carts, motorbikes, all-terrain vehicles (ATVs), snowmobiles, support vehicles, and vehicle assemblies, as well as components utilized in manufacture, will be subject to duties.
The official noted that once the new duties are in place, both locally assembled and completely built-up (CBU) cars are likely to become more expensive.
The Argument of an Economist
By abolishing tax breaks and placing new charges on several major sectors, the government has begun to push the weight of Pakistan’s faltering economy directly onto the common populace.
Gonzalo Verela, a well-known global economist, slammed the policy, tweeting:
— Gonzalo Varela (@gonwei) April 19, 2022
Varela suggested that Pakistan’s expanding Current Account Deficit (CAD) is caused by a savings/investment imbalance and that the remedy is to implement measures that encourage saving.
Import taxes, he added, maybe a short-term answer for reducing imports, but they will also reduce exports by raising profitability in domestic sales, prompting businesses to concentrate only on the local market. “Import duties are essentially hidden export taxes.” “They’re not going to lower the CAD,” Varela explained.
He further said:
“[Import Duties] are not just ‘not the solution’. They are a big problem. Why? When levied on inputs, they reduce the productivity of firms, because they reduce their options on how to produce. Higher input tariffs mean less productivity, fewer sales, and lower wages”.
Automobile manufacturers are aware of these issues and are concerned about their prospects in Pakistan.