Proposed Tax Changes Threaten Pakistan’s Auto Industry, Warns PAMA

Proposed Tax Changes Threaten Pakistan's Auto Industry, Warns PAMA

The Federal Government of Pakistan is reportedly considering a change in the Withholding Tax (WHT) imposed on domestically manufactured vehicles. The new proposal seeks to calculate tax based on the invoice price, instead of the engine capacity as is currently done. 

In response, the Pakistan Automotive Manufacturers Association (PAMA) has issued a stern warning regarding the potentially damaging effects this could have on the country’s auto industry, which is already grappling with numerous challenges. 

A letter from PAMA to the Chairman of the Federal Board of Revenue (FBR), cautioned that switching the WHT calculation basis would adversely impact sales of locally-manufactured cars. 

The industry body urged the FBR to reconsider this proposition, arguing that it would inevitably lead to higher retail prices due to an increased WHT on locally-produced vehicles. PAMA further requested a reduction of the current WHT, which is based on engine size. 

In their communication, PAMA highlighted the tumultuous journey of the auto industry in recent years. Apart from a downturn during the COVID-19 pandemic years of 2019-20 and 2020-21, the industry started showing signs of recovery in 2021-22. However, it experienced a significant drop once again in 2022-23, largely due to import constraints. 

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The association underscored that these restrictions, combined with escalating inflation and other macroeconomic issues, have resulted in several of its members suffering financial losses amounting to billions of rupees. 

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