The federal government has suggested a 2.5 percent upsurge in Federal Excise Duty (FED) on all vehicle imports in the 2022-23 fiscal budget. The decision is awaiting the federal cabinet’s consent. According to a high-ranking Federal Board of Revenue (FBR) official, the next budget will include significant amendments in Chapter 87 of the Pakistan Customs Tariff.
Cars to Become More Expensive Once the New Duties Are Set in Place
He added that the government will impose duties (FED) on the imports of sports automobiles, minivans, off-road motorcars, golf carts, motorcycles, all-terrain vehicles (ATVs), snowmobiles, and support vehicles, and vehicle assemblies, and components used in manufacturing. Both locally assembled and entirely built-up (CBU) cars are probably to become more costly once the new duties concerning the vehicle imports are in place, the official added.
The government has started moving the burden of Pakistan’s stumbling economy directly onto the general populace by withdrawing tax reliefs and setting new taxes on several major sectors. A well-known global economist, Gonzalo Verela, criticized this strategy and tweeted: “Pakistan’s widening Current Account Deficit (CAD) is due to a savings/investment imbalance, and the solution for it entails policies that increase savings,” Varela argued.
He added that duties (FED) on vehicle imports might be a short-run answer to curb imports, but they will curb exports as well by improving profitability in domestic sales, which would press the firms to concentrate only on the local market. “Import duties are implicit export taxes. They won’t reduce the CAD,” Varela explained.
Duties on Vehicle Imports are Not the Solution
He further remarked, “[Vehicle Import Duties] is not just ‘not the solution’. They are a big problem. Why? When levied on inputs, they reduce the productivity of firms, because they reduce their options on how to produce. Higher input tariffs mean less productivity, fewer sales, and lower wages”. Automakers are conscious of these statements and are worried about their fate in Pakistan.