Car prices in Pakistan are poised to rise following the release of this year’s budget, primarily due to an anticipated increase in the withholding tax. This development spells trouble for both buyers and sellers, as the automotive market is already sluggish this fiscal year, with prices at an all-time high.
The Federal Board of Revenue (FBR), the country’s apex tax collection authority, has proposed a hike in the withholding tax for vehicles with an engine capacity of 850cc or higher in the upcoming budget for the fiscal year 2024-25. This move is part of a broader strategy to boost revenue and align with the conditions set by the International Monetary Fund (IMF) for a bailout package.
In addition to the vehicle tax, there is also a proposal to increase the advance tax on cash withdrawals from banks by non-filers. Unofficial sources indicate that the withholding tax rate for non-filers could rise from the current 0.6 percent to 0.9 percent starting from the new fiscal year. If approved by the assembly, this change is projected to generate additional Rs15 billion revenue from non-filers.
The federal budget for FY2024-25, which is set to be presented on June 7 2024, projects a total expenditure of Rs16,700 billion. Of this, Rs9,700 billion is earmarked for interest and loan repayments, while grants are expected to total Rs1,500 billion.
The government anticipates exceeding Rs11,000 billion in tax revenue, with direct taxes contributing Rs5,300 billion. Additionally, federal excise duty is expected to yield Rs680 billion, sales tax is projected to generate over Rs3,850 billion, and customs duty is anticipated to bring in more than Rs1,100 billion.
As these tax changes loom, the automotive sector and potential car buyers in Pakistan are bracing for a challenging fiscal year ahead. The proposed measures, while aimed at increasing revenue, could further strain an already struggling market.
