Reducing car prices

Nadeem Moulvi


The writer is a business analyst.

The decrease in the prices of vehicles comes as a massive relief to customers who desire to buy a new car. The government has once again given a huge tax incentives to the auto sector, but as we have seen in the past, the benefits have never been passed on to customers nor does it impact the economy.

The automotive sector is one of the major industrial sectors of Pakistan and has the potential to change the economy. The government controls business activities in the country but the powerful auto industry has always manipulated policies for their vested interests. The cartelization of the auto sector has seen us buying substandard cars at expensive prices than the same models available in other countries.

The government has once again reiterated its commitment to bringing down the prices of vehicles. This was announced in the Federal Budget that taxes on small cars would be reduced. The government has removed FED and additional customs duty (ACD) on locally manufactured cars up to 1,000cc cars. It has also claimed that tax relief measures will help boost the production of cars to 300,000 units this year and up to half a million in the next fiscal year.

Federal Minister for Industries and Production Khusro Bakhtiar has claimed that increasing demand for local vehicles would help achieve the 6% economic growth target which the government has envisaged. He said attractive incentives have been formulated to promote the localisation of cars. If car companies don’t reduce prices due to the tax measures, the government would allow the import of vehicles in the new auto policy expected next month.

The automobile sector has always manipulated policies and tax relief measures without slashing the prices of vehicles.

It has always lobbied to stop car imports and has even discouraged reconditioned cars. As a result, we are forced to buy expensive vehicles while the profit of car companies keeps on multiplying as they absorb all the tax benefits.

The main goal of a business is profit maximization and the foremost objective of the government is ensuring economic stability and growth. Unfortunately, the business community has pandered to government officials seeking tax breaks and relief measures. The car industry has never made any effort to reduce prices. The government needs a tackle the car cartel head-on and enforce the reduction in car prices.

The government should refrain from giving relief measures to the auto sector. We lack the infrastructure and road network and cannot add half a million new cars on the streets every year. The introduction of electric vehicles will also not resolve the matter as we produce one of the most expensive electricity in the world. Since Pakistan lags behind in oil production, we have to import petroleum which adds to the cost of vehicles. Increasing the number of cars will increase our import bill and will worsen our current account as we don’t manufacture cars with local resources and only assembly them.

The government should instead focus on improving the road network and develop efficient public transport. A developed country is not one where the poor can buy cars but where the rich use public transport. Our cities need a mass transit system that can resolve our traffic woes rather than relying on the auto industry to drive the economy.