Auto manufacturers pocket sales tax benefit

Counter to the rules of depreciation the automobile industry in Pakistan is witnessing the sale of used vehicles at higher prices. The government seems to have given a free hand to the automobile manufacturers in this regard and is doing nothing to control prices. The government’s decision to decrease sales tax has had no impact on the price of vehicles. Consumers have also criticised the government for failing to end the monopoly of the car manufacturers. A brand new automobile, which was sold for Rs350,000 five years ago is still sold for the same price if not more. This is mostly due to pressure caused by the exorbitant prices of brand new vehicles. The depreciation rate cars is estimated at somewhere between 15 to 20 per cent, depending on the condition of the car. However, the current market mechanisms are such that the price of brand new vehicles have risen sharply in the last few years resulting in a price hike of used vehicles as well.
SALES TAX RESPITE NOT WORKING
In the annual budget 2011-12 the federal government reduced sales tax on cars by one per cent and it was expected that the prices of vehicles would come down but vehicle manufacturers increased the prices of all types of vehicles. Now the government is collecting less sales tax from the automobile industry but the consumer is paying a much higher price for the vehicles. Auto manufacturers have pocketed the sales tax reduction instead of transferring it to the consumers.
IMPORT OF VEHICLES
Manufacturers are opposing the idea of relaxing the import of used vehicles over hollow claim of providing employment opportunity for local labour. The import of vehicles could stimulate the auto industry and in fact create more jobs. The government has also turned a deaf ear on the proposals of Competition Commission of Pakistan (CCP) for relaxing import of used vehicles. Though the government has relaxed the import of used vehicles still there are many flaws in the import policy and it has had no impact on the prices of vehicles in the local market.
MONOPOLY OF CAR MANUFACTURERS
Automobile dealers, sellers and consumers criticised the automobile manufacturers and the government for not bringing down the prices. They said that the government has failed to break the monopoly of the sector and succumbed to pressure. The consumers said that the government should bring new car manufacturers in the country and break the hegemony of current manufacturers. “The car manufacturers have made a cartel to increase the prices therefore it is necessary that new manufacturers be welcomed,” said a banker Sadeed Ather adding that in mid 1990s motorcycle manufacturers also made a similar cartel but with the introduction of new brands and manufacturers the prices of motorcycles gradually decreased.
CAR DEALERS SUFFERING
Dealers said that there businesses have been ruined due to increase in prices of vehicles. “The high prices have played havoc with our businesses,” lamented a car dealer Muhammad Rizwan Goraya of Shadman adding that he used to strike at least two deals in a day but now only one or two vehicles are sold in a week. Jail Road Traders Association General Secretary Zafar Iqbal said the government should allow import of used vehicles, as it would create healthy competition in local industry. He said the country is facing shortage of vehicles, which could only be bridged through import of used vehicles. He said prices of automobile have increased by more than 60 per cent in the last three years but no one is raising concerns.