The federal government of Pakistan is reportedly considering a significant change in its taxation policy for locally produced automobiles. According to reliable sources, the government is planning to shift the basis of Withholding Tax (WHT) from engine capacity to invoice price in the upcoming budget. This proposed move has raised alarms within the Pakistan Automotive Manufacturers Association (PAMA), which warns of potentially detrimental consequences for the already struggling auto industry.
In a recent letter addressed to the Chairman of the Federal Board of Revenue (FBR), PAMA expressed concerns about the negative impact that altering the basis of WHT could have on the sales of domestically manufactured vehicles. PAMA firmly requested the FBR to reconsider this proposal, emphasizing that it would inevitably result in increased WHT amounts for locally-made vehicles, subsequently leading to higher retail prices. Additionally, PAMA urged the FBR to consider reducing the current engine-based WHT on vehicles.
PAMA highlighted the industry’s recent performance, noting that after experiencing a decline during the COVID-19 years of 2019-20 and 2020-21, the auto sector began to recover in 2021-22. However, due to import restrictions imposed in 2022-23, the industry experienced a massive downturn once again. These restrictions, combined with skyrocketing inflation and other macroeconomic challenges prevailing in the country, have caused several PAMA members to incur losses amounting to billions of rupees.
As the auto industry continues to face these obstacles, PAMA’s plea to the government aims to protect local manufacturers and prevent further harm to the sector. The association stresses the need for comprehensive measures that promote growth, support the industry, and create a favorable business environment for all stakeholders involved.