BMI View: The recent FY2014/15 (July-June) budget has seen the Pakistan government abolishing the 10% Federal Excise Duty (FED) on locally assembled vehicles above 1,800cc while still retaining the 10% FED on imported vehicles. We believe this policy development will continue to make locally assembled vehicles more attractive to consumers versus imported vehicles. We forecast auto sales to grow 4.1% in FY2014/15.
Although manufacturers have not necessarily been able to make their assembly operations more efficient, and the business environment remains poor, the appreciation in the Pakistani rupee since March has been a boon to the auto sector as it has made the import of components for these assemblers cheaper ( see 'Rupee Strength Comes To Sector's Rescue', May 2). This has allowed them to lower prices of their cars and increase sales at the expense of imported cars. Total car imports during the first 10 months of FY2013/14 were down 57% year-on-year, to 17,984 units.
We see this removal of duties on locally produced cars further boosting their price competitiveness vis-a-vis imported cars as firms will be able to provide greater price discounts to consumers.
While it is understandable that the government wants to protect the domestic industry against competition from imported vehicles, this move has not gone down well with everyone. The chairman of All Pakistan Motor Dealers Association, H M Shahzad, has written a letter to Federal Finance Minister Ishaq Dar to flag up the negative impact of this policy on the used car market. One possible impact would be to used car importers, which could lose some of their business as customers choose to buy new locally produced cars instead.
Although the government will face a balancing act in the coming years as it tries to balance the needs of consumers, local manufacturers and used car importers, BMI believes that the industry needs to embrace reforms to remain competitive in the coming years.
The Pakistan Autos Report features the latest data and forecasts covering production, sales, imports and exports.
Business Monitor International (BMI)'s Pakistan Autos Report provides industry professionals and strategists, corporate analysts, auto associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on the automotives market in Pakistan.
- Benchmark BMI's independent automotives industry forecasts on Pakistan to test other views - a key input for successful budgetary and planning in the Pakistani automotives market.
- Target business opportunities and risks in the Pakistani automotives sector through our reviews of latest industry trends, regulatory changes and major deals, projects and investments in Pakistan.
- Assess the activities and market position of your competitors, partners and clients via our Competitive Landscape Analysis.
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