The Punjab Government presented the Finance Bill on Tuesday during the budget session for the upcoming fiscal year 2018-2019 and proposed 50-80% slashes on the taxes of imported cars.
The decrease in taxes has been proposed so that buyers register their cars in the province instead of in Islamabad and other provinces where taxes on imported cars are cheaper.
The Punjab Revenue Authority in an effort to increase its tax bracket has also proposed a five time increase in stamp duty which is likely to generate almost Rs 1 billion in taxes for the government.
The new tax bracket will lower the tax on cars exceeding 1300cc till 1,500cc to Rs 15,000 from the current Rs 70,000. Cars with engine capacity exceeding 2000cc but not above 2500cc, tax has been reduced to Rs100,000 from Rs 200,000 while cars with engine capacity not exceeding 2000cc will be charged Rs25,000. Cars with engine capacity exceeding 2,500cc have been maintained tax at Rs 300,000 as they are purchased mostly by the elite.
Meanwhile, car importers have responded to the rupee devaluation by increasing prices of vehicles. The Indus Motor Company (IMC) said it was necessary for them to pass on the challenge of retail selling prices and they had to pass it on to the market.
The rupee devalued massively following the government’s decision to return to the IMF for a second bailout in five years. The government toke the decision to avoid a default on import and debt payments.
All together the rupee has devalued 26.67% in the last 10 months and the big drop last Tuesday of 7.5% reflected the current account dynamics and a gap in the foreign exchange market.
This is reflected in the price of high-use cars like Toyota Corolla XLI price increase by Rs 50,000 immediately and then another increase of Rs 50,000 in January 2019 bringing the price of the XLI to Rs 2.044 million.
Meanwhile, 4×4 cars have also become more expensive with an increase of Rs 175,000 to Rs 6.624 million and an expected increase to Rs 6.800 million in January 2019.
IMC CEO has said that the price increase is a small reflection of the rupee devaluation and the rest will be absorbed by the company. Other automobile companies are also likely to increase prices of cars following Indus Motors.