New Car Financing Scheme featuring tax reduction to be introduced under new Auto Policy

The aim to introduce a new policy is to promote sales of affordable small cars i.e. 850 cc-1000 cc, promote localization in domestically assembled cars.

Things are looking up for the local auto market of Pakistan as the government is bringing in initiatives to incentivize the small car industry. Significant relief in duties and taxes on the sales and purchases of smaller vehicles is being offered in the 2021-22 budget. However, more schemes are being brought in to encourage the buying and selling of local small vehicles.

Reports state that the government is going to introduce a new car financing scheme with a lower interest rate of 5 to 6 percent. Under this scheme, customers who are unable to buy a car after major price hikes in the past few years will be able to afford one.

During a recently held meeting on the proposed new auto policy, the Federal Minister for Industries and Production, Makhdum Khusro Bakhtyar, said:

The aim to introduce a new policy is to promote sales of affordable small cars i.e. 850 cc-1000 cc, promote localization in domestically assembled cars, produce an exportable surplus of auto-parts of 2-3 wheelers, and increase the competition in the local market so that people in Pakistan could enjoy better technology at affordable prices.

Details of the New Car Financing Scheme

An official statement released by the Ministry of Industries and Production reads:

The government is interested in facilitating the customers of small cars of 850 cc to 1000 cc with the reduced interest rate to stimulate maximum buyers. The financing facility would also be extended to cars of above 1000 cc.

The official Minister further stated:

The rate being proposed for small cars would be around 5 percent while 6 percent is being suggested for cars of more than 1000 cc. According to details, the provision of this facility is currently under discussion with stakeholders. 

Apart from the financing facility, the government has also announced a reduction in general sales tax (GST) on locally assembled cars up to 850cc to 12.5 percent from 17 percent in the budget 2021-22. The GST reduction is followed by the exemption of federal excise duty (FED) and value-added tax to give relief to small car buyers.

New Policy for Hybrid Cars

Sources further reveal that stakeholders in the auto sector have also agreed to provide incentives to hybrid cars in the next policy (2021-26), similar to what has been given to electric cars. Electric vehicles (EV) parts in hybrids are likely to receive similar incentives as stipulated in the EV policy.

An official at Engineering Development Board (EDB) said:

The duty relaxation offered for parts of the EVs is being proposed to CKD of hybrid cars too under the new auto policy.

It is pertinent to mention that the EV Policy introduced a 1 percent sales tax for locally made EVs up to 50 kwh and light commercial vehicles up to 150 kwh. Alongside that, duty on the import of charging equipment of EVs was capped at 1 percent.

The Additional Secretary Ministry of Industries and Production Hamid Atique said:

The ministry is trying to cover the tax part of the upcoming auto policy which is to be included in the FY22 budget. The remaining part of the policy would be finalized next month.

Experts believe that the 2021-22 budget and these new schemes and policies altogether will boost the local auto market of Pakistan a great deal. The facilities will increase sales of more vehicles, ultimately creating more business and employment opportunities. According to experts, the small car-producing local companies will enjoy the concession most.

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