Pak Suzuki Motor Company Limited (PSMC) is set to bear the full brunt of the Gross Asset Tax, given its thin margins, as it will possibly witness contraction of roughly 39 percent in terms of its Earning per Share (EPS) by dint of one percent GAT levy.
Indus Motor Company is likely to have a 3.4 percent impact on its EPS due to this one percent GAT levy. However, the possible impact of one percent higher Corporate Tax Rate (CTR) and 15 percent flood tax surcharge on the EPS of both companies will be contraction of 1.5 percent and 8.1 percent respectively.
The risk entailed by government planning and its decision to move ahead with either of the Gross Asset Tax, higher corporate tax rate and extension of 15 percent flood surcharge in the upcoming budget is likely to remain a worrying factor given the government’s penchant for quick fixes in revenue generation. It is pertinent to note that under the Auto Industry Development Program (AIDP), the government has failed to stick to its commitment of lowering complete knocked-down (CKD) unit duty rates for cars from 32.5 percent to 30 percent. However, under the same programme, the government could increase the duty on high-tech components like starter motors, water or fuel pumps, power steering, transmissions and engines. The automakers have also weighed in stressing that sales lower than forecast levels as well as technology constraints remain key obstacles in localised manafacture of the parts. We believe that higher duty rates could end up more than offsetting the benefits of CKD duty relief, said Muhammad Saqib Sajjad, a research analyst at KASB Securities.
The government may remove 50 percent regulatory duty on luxury items that was imposed in 2008. The duty is applicable on cars above 850cc engine size, in addition to normal duties. Its removal seems a remote possibility, given that the government is desperately seeking to increase tax revenue. In addition, the government has already relaxed the age limit of used cars from three years to five years and is raising cap from 50 to 60 percent. It is expected to pave the way for the import of used complete built-up units which could drastically affect the sales of local automakers.
Local manufacturers have proposed the revamping of the current sales structure for automakers from a direct sale to a wholesale model, where dealers will have a greater legitimate role in determining final prices.
