Islamabad, The recent Federal Budget for FY25 has introduced significant changes in the auto sector's taxation structure, potentially reshaping market dynamics. These measures include adjustments in concessionary duties and a reevaluation of the Advance Tax regime based on vehicle value instead of engine capacity.
According to JS Global, the government has removed concessionary duties on imported hybrid electric vehicles (HEVs) and luxury electric vehicles (EVs) valued above US$50,000, now subjecting these to a 25% tax. Furthermore, local hybrids have been removed from the 8.5% concessionary Goods and Services Tax (GST) category and are now subject to a 25% GST, aligning them with petroleum-powered cars. While these changes could penalize imports, benefiting local HEV assemblers, the increase in GST from 8.5% to 25% is likely to significantly raise ex-factory prices, which could dampen consumer demand. However, during discussions related to the Finance Bill, Finance Minister Mr. Aurangzeb announced the decision to maintain the reduced sales tax rates on HEVs at 8.5%.
The budget also proposes a shift in the Advance Tax structure, moving from engine capacity to the vehicle's value from FY25. This change aims to bring uniformity to the tax regime, potentially affecting auto assemblers that have shifted to lower cc turbocharged engines to mitigate higher taxation rates. The proposed rates range from 0.5% of the vehicle's value for cars up to 800cc to 12% for cars above 3000cc, replacing a flat rate based on engine brackets.
JS Global views the FY25 budget as neutral for the auto sector, with positive aspects leaning towards HEV assemblers despite the potential for higher price impacts across the board. The long-term profitability of the sector may hinge on stable currency exchange rates and declining interest rates, which are crucial for boosting auto financing and enhancing consumer purchasing power.