Hybrid makers face tax dilemma

KARACHI: Hybrid car assemblers are now in a quandary as the government increased the general sales tax (GST) to 25 per cent from 8.5pcin the new budget.

As a direct consequence, the price of locally made hybrid vehicles is projected to surge, with some models potentially increasing by up to Rs1.4 million to over Rs2.2mn after the GST hike.

Sources said that the assemblers of these vehicles were surprised to receive this GST shock on locally produced vehicles in the budget. However, the government favoured them by abolishing customs duty on the import of hybrid cars and luxury electric vehicles (EVs) to promote the local industry.

An auto assembler who asked not to be named said that jacking up the GST seems like a fair move since these expensive vehicles are bought by rich people who can pay tax.

He said the government had provided subsidies to the local hybrid vehicle makers by keeping the GST at 8.5pc to ensure price benefits to the buyers. On the contrary, there was 25pc GST on above 1000cc vehicles available at lower prices than hybrid vehicles. The assemblers continued to make handsome profits on hybrid vehicle sales and rolled out high-priced variants.

For example, Toyota Cross HEV and HEV X, HAVAL HE HEV, Hyundai Santa Fe Smart and Santa Fe Signature currently carry a price tag of Rs9.399m, Rs9.843m, Rs11.866m, Rs12.990m and Rs14.699m. Their prices are feared to go up by Rs1.4mn to Rs2.2mn after the GST increase to 25pc from Rs 8.5pc.

The assembler said that after a fashion statement in bringing locally assembled hybrid vehicles, more Japanese, Korean and Chinese players were gearing up to launch hybrid vehicles. The assemblers of existing and upcoming hybrid vehicles are reportedly in contact with the government to resolve the GST increase issue.

However, it is not clear whether the government would rectify the GST hike as sales tax collection usually falls in the domain of the Federal Board of Revenue (FBR), on which the IMF puts a lot of pressure.

Published in Dawn, June 14th, 2024