Non-tax filers allowed to buy local cars irrespective of engine size

KARACHI: As per the amended Finance Bill approved by Parliament, the law barring non-tax filers from purchasing motor vehicles has been removed for all cars, irrespective of engine size.  This is only applicable for cars manufactured locally.

To recall, previous government had imposed ban on non-tax filers from purchasing motor vehicles while in the recently announced Economics Reform Package, the new government had proposed the removal of said law for cars of engine size 1300cc and below. The Senate subsequently had recommended to reduce this to 800cc cars.

“We believe this latest amendment will be positive for the auto sector. However, this step, we believe, will counter Govt.’s continued efforts to bring more people in the tax net,” a report issued by Topline Securities said.

Approximately 25% of Pakistan auto sales are in 1300cc or above category. This new development will particularly be positive for Honda Cars (HCAR) followed by Indus Motor Company (INDU) and Pak Suzuki Motor Company (PSM).

HCAR sells all of its cars in above 1300cc engine capacity while INDU and PSMC sell approximately 50% and 3%, respectively, in 1300cc above engine capacity.

Moreover, in January, while presenting the Economics Reform Package, 10% Federal Excise Duty (FED) had been imposed on 1800cc above cars, which was almost neutral for the sector as approximately 4% of sector sales are in 1800cc above engine capacity.

“However, now the 10% FED has been imposed on cars in 1700cc above engine capacity, which will be negative for the sector,” Topline Securities report said.

This additional measure will have the most impact on HCAR, which sells almost 45% of its cars, that is the Civic, in 1700cc above category. However, the increase in price for the Civic will result in likely sales push for the company’s City, which comes in 1,300cc and 1,500cc engine capacities. Also, introduction of a lower capacity engine variant for the Civic cannot be ruled out.

Around 24% of INDU sales are in 1700cc and above category, which will be affected. However, INDU already has a 1,600cc variant for its top of the line Toyota Model, which it will likely market aggressively.

“We believe that combined, these additional amendments will be net negative for Honda Cars (HCAR) while positive for Indus Motor Company (INDU) and Pak Suzuki (PSMC)”.[the_ad id=”31605″]

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