Why cars are expensive in Pakistan?

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Why cars are expensive in Pakistan?​

PakWheels co-founder says overpricing without int’l standard features real issue

ISLAMABAD:
What comes to your mind when you think about buying a car in Pakistan – taxes? Duties? Little or almost no safety and quality features … or almost no value for your money?

That’s right; not only this is what is being produced and sold but, at the moment, there is no focus at all on the production of cheap cars having features of international standard.

The Express News’ talk show, The Review, on Saturday night shed led on the issues pertaining to the automobile industry, pricing mechanism, hurdles in localisation of industry, protection of consumers’ interests, safety and quality standards, government’s role, future outlook and the next five-year policy as well as the future of electric vehicles in Pakistan.

The hosts – Shahbaz Rana and Kamran Yousaf – discussed in detail the factors that influence the pricing mechanism, compared the brands with India, and dug deeper into the issues being faced by the consumers.

Suneel Munj, the co-founder of PakWheels.com, said that there was no doubt that cars were not only expensive but there was no clear policy to ensure safety and quality features in Pakistan.

“Cars are expensive but the real issue is that the buyers do not get the best value for their money,” Munj said, adding overpricing and that too without the international standard safety and quality features was the real issue.

MNA Ali Pervaiz said that “cartelisation” is evident from the heavy presence of specific players of the automobile industry in the market. The lawmaker emphasised on the need for providing conducive environment and positive competition.

Pervaiz also blamed the ban on the import of cars for cartelisation.

Engineer Asim Ayaz of the Engineering Development Board (EDB) – the apex government body under Ministry of Industries and Production – however, said that the government did not control prices nor the features, adding that the EDB monitors Completely Knockdown (CKD) units’ imports. “Top-of-the-line vehicles have all the international features,” Ayaz said.

“Price control should be a subject of the government instead of the auto industry,” Munj incorporated, adding that the industry should be asked to explain how different things – taxes, dollar rate and local production of parts – influence prices and the government should work on how prices can be reduced. “The government should monitor auto industry just like it monitors a retail shop,” he said.

Read more: Car sales rise 15% in December

Pervaiz said that reasonable competition should be increased and defects in the fiscal policy pertaining to the auto industry must also be identified, adding that increasing the car-manufacturing volume will reduce prices.

“The situation will get better when competition is increased,” Ayaz said, adding that things will start getting better from this year as several new players have obtained licences and a few have already started working in Pakistan.

“The government should effectively play a regulator’s role to protect consumers’ interests,” Munj said. On the auto policy, he said that “consistency is important”.

Suggesting a way forward to reduce car prices, Munj said, the government should begin by reducing taxes and making it mandatory for the industry too to not increase prices.

Pervaiz suggested that the government should revive the Competition Commission of Pakistan so that it could create a competitive environment for the industry. He was all in for promoting “made in Pakistan” philosophy, saying the auto industry should also be given reasonable protection.

Ayaz while emphasising that the consumers were the No 1 priority for the government said the “big three” auto companies have also invested a huge amount of money in Pakistan.

During the discussion, issues pertaining to import of cars, transfer of technology, upcoming auto industry policy and electric as well as hybrid vehicles were also discussed.'

 

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“The government should effectively play a regulator’s role to protect consumers’ interests,” Munj said. On the auto policy, he said that “consistency is important”.

In Pakistan, the job of the government is to enrich its cronies by using its regulator's role to screw the people. That is a blunt statement of fact that must be understood in order to explain the endemic failures of intention over the country's history.
 

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So,cars are expensive Pakistan?

Turkey’s car taxes add huge costs to fleets​


Extreme purchase taxes can more than double the pre-tax price of cars, and there may be more pain to come as the government reviews annual motoring tax.





Local taxes make Turkey one of the most expensive countries in which to operate cars. And those costs could increase significantly depending on the outcome of current debates in the country’s parliament about the annual circulation tax.





The acquisition of a new car in turkey is subject to a one-off ‘Special Consumption Tax’ (SCT), based on the vehicle’s engine size and pre-tax price. For example, a car with a pre-tax price below ₺40,000 (€9,000) and an engine smaller than 1.6-litres faces an SCT of 45%. This rises to 50% for cars of this size that cost ₺40,000 - ₺70,000 (€9,000-€15,500); and 60% for cars costing more than ₺70,000 (€15,500).





For cars with an engine sized between 1.6 and 2.0-litres that cost less than ₺100,000 (€22,300), SCT rises to 100% (see panel). The same percentage applies to cars with engines larger than 2.0-litres if they cost less than ₺100,000.


But cars with a pre-tax price in excess of ₺100,000 and an engine larger than 2.0-litres, face an eye-watering SCT of 160%.





VAT of 18% is then applied to the combined figure of pre-tax price plus SCT. This means the effective tax rate on the purchase of a car ranges from 71.1% to 206.8%.

Tax breaks are available for hybrid cars, depending on their pre-tax price, engine capacity and the size of their electric motor.





Pure electric cars qualify for substantial tax advantages, with the total tax (SCT and VAT) levied on their pre-tax price as low as 21.25%.


Vehicles in Turkey are also subject to an annual vehicle tax, Motorlu Taşıtlar Vergisi (MTV). Earlier this year the Government announced plans to raise MVT by 40% from January 2018, but has since stepped back from this scale of increase, instead suggesting that MVT will go up by a ‘reasonable level’.





A 40% increase would have a serious impact on fleet running costs, pushing up the MVT on 1300-1600cc engine cars to ₺1449 (€345); 1601-1800cc engine cars to ₺2558 (€609); and 1801-2000cc engine cars to ₺4,290 (€1,000).


The issue is currently being debated in parliament, with commentators expecting a new MVT system based on both the engine size and pre-tax price of cars.

“The passenger car MVT is expected to rise by 15% and 25% depending on the engine size (15% for below 1300cc engine size vehicles, 25% above 1300cc),” said Tolga Özgül, general coordinator of TOKKDER, the Turkish vehicle leasing association.


He added that the increase in MVT, which will drive up total costs of ownership, will increase demand for operational leasing as fleets seek to manage their operating costs and reduce their risk exposure.


Leasing companies can recover the VAT on cars acquired to lease to customers, but outright purchase fleets cannot recover the VAT paid on the purchase of cars. However, a VAT rate of 18% is charged on operating lease rentals, according to PWC’s Global Automotive Tax Guide (2016).





This same guide explains that in terms of company car tax, all benefits either in form of cash or benefit in kind should be considered as salary and be subjected to income taxation. As a result, the private use of a company car should be subject to income tax.


However, there are no concrete rules, methods, guidelines or lump-sum ceilings provided by the tax authorities to help employers calculate what this should be.

1639058665023.png


 

VCheng

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VAT of 18% is then applied to the combined figure of pre-tax price plus SCT. This means the effective tax rate on the purchase of a car ranges from 71.1% to 206.8%.

A tax to tax another tax. Amazing how similarly such tactics work in many countries. :D
 

OverTheHorizon

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1. Because you don’t have local manufacturing
2. Because you are too poor to generate the buying volumes needed for manufactures to supply economically.
3. High import and local taxes
4. Huge maintenance costs due to overall bad infrastructure
5. To cover the seller’s transaction risks as Pakistan is a high risk country, means transportation insurance for sellers is going to be very high.
 

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It's good that cars are expensive in Pakistan
F cars
Invest in public transportation - electric buses, dedicated bus lanes, electric bikes, electric rickshaw or taxis

Car centric infrastructure is more expensive for cities in the long run

Also it's because of - lack of local manufacturing, taxes, need financing reforms in General which automatically results in higher volume

Although personally I think cars should be expensive in most countries by policy not economics
 
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Maula Jutt

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1. Because you don’t have local manufacturing
2. Because you are too poor to generate the buying volumes needed for manufactures to supply economically.
Countries with similar demand/ volume to that of Pakistan had significantly cheaper cars
3. High import and local taxes
4. Huge maintenance costs due to overall bad infrastructure
BS, paks at least car centric infrastructure is very good for a developing country
It might be an issue but no more or less than any other less that 10k per capita income country
5. To cover the seller’s transaction risks as Pakistan is a high risk country, means transportation insurance for sellers is going to be very high.
 

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Why cars are expensive in Pakistan?​

PakWheels co-founder says overpricing without int’l standard features real issue

ISLAMABAD:
What comes to your mind when you think about buying a car in Pakistan – taxes? Duties? Little or almost no safety and quality features … or almost no value for your money?

That’s right; not only this is what is being produced and sold but, at the moment, there is no focus at all on the production of cheap cars having features of international standard.

The Express News’ talk show, The Review, on Saturday night shed led on the issues pertaining to the automobile industry, pricing mechanism, hurdles in localisation of industry, protection of consumers’ interests, safety and quality standards, government’s role, future outlook and the next five-year policy as well as the future of electric vehicles in Pakistan.

The hosts – Shahbaz Rana and Kamran Yousaf – discussed in detail the factors that influence the pricing mechanism, compared the brands with India, and dug deeper into the issues being faced by the consumers.

Suneel Munj, the co-founder of PakWheels.com, said that there was no doubt that cars were not only expensive but there was no clear policy to ensure safety and quality features in Pakistan.

“Cars are expensive but the real issue is that the buyers do not get the best value for their money,” Munj said, adding overpricing and that too without the international standard safety and quality features was the real issue.

MNA Ali Pervaiz said that “cartelisation” is evident from the heavy presence of specific players of the automobile industry in the market. The lawmaker emphasised on the need for providing conducive environment and positive competition.

Pervaiz also blamed the ban on the import of cars for cartelisation.

Engineer Asim Ayaz of the Engineering Development Board (EDB) – the apex government body under Ministry of Industries and Production – however, said that the government did not control prices nor the features, adding that the EDB monitors Completely Knockdown (CKD) units’ imports. “Top-of-the-line vehicles have all the international features,” Ayaz said.

“Price control should be a subject of the government instead of the auto industry,” Munj incorporated, adding that the industry should be asked to explain how different things – taxes, dollar rate and local production of parts – influence prices and the government should work on how prices can be reduced. “The government should monitor auto industry just like it monitors a retail shop,” he said.

Read more: Car sales rise 15% in December

Pervaiz said that reasonable competition should be increased and defects in the fiscal policy pertaining to the auto industry must also be identified, adding that increasing the car-manufacturing volume will reduce prices.

“The situation will get better when competition is increased,” Ayaz said, adding that things will start getting better from this year as several new players have obtained licences and a few have already started working in Pakistan.

“The government should effectively play a regulator’s role to protect consumers’ interests,” Munj said. On the auto policy, he said that “consistency is important”.

Suggesting a way forward to reduce car prices, Munj said, the government should begin by reducing taxes and making it mandatory for the industry too to not increase prices.

Pervaiz suggested that the government should revive the Competition Commission of Pakistan so that it could create a competitive environment for the industry. He was all in for promoting “made in Pakistan” philosophy, saying the auto industry should also be given reasonable protection.

Ayaz while emphasising that the consumers were the No 1 priority for the government said the “big three” auto companies have also invested a huge amount of money in Pakistan.

During the discussion, issues pertaining to import of cars, transfer of technology, upcoming auto industry policy and electric as well as hybrid vehicles were also discussed.'

The manufacturers link the price to the FX rate which has taken a severe decline ever since the PDM government came to power. There are other reasons like low deletion rate etc.
 

OverTheHorizon

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Countries with similar demand/ volume to that of Pakistan had significantly cheaper cars

BS, paks at least car centric infrastructure is very good for a developing country
It might be an issue but no more or less than any other less that 10k per capita income country
How is car centric infrastructure good in Pakistan? Is there a network of good authorized service centers around the country manned by certified staff from these brands? Do these centers have access to good quality tools, spare parts etc?
 

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how is this at all relevant in the slightest sense for a defence forum? who gives a damn about why cars are expensive in any country?
 

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Pakistan does not need cars its got the 3 wheel Ricksaw!!!
 

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How is car centric infrastructure good in Pakistan? Is there a network of good authorized service centers around the country manned by certified staff from these brands? Do these centers have access to good quality tools, spare parts etc?
National Highways, Urban road infrastructure is very good for a country with our per capita gdp lvls - it's wrong to invest more in that sector as of now

Automobile industry generally lacks in volume due to market protection resulting in a monopoly of some, it's less of a infrastructure issue than a bad policy one

Although as I have maintained cars should be expensive "if" countries are already investing in public transportation
 
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How is car centric infrastructure good in Pakistan? Is there a network of good authorized service centers around the country manned by certified staff from these brands? Do these centers have access to good quality tools, spare parts etc?
Yes each brand has their authorised dealers with full service centers and they are certified every 2 years by the company.
 

OverTheHorizon

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Yes each brand has their authorised dealers with full service centers and they are certified every 2 years by the company.
Ok then. The issue of lack of purchasing power owing to high poverty levels in pakistan remains. Further fuel prices are out of reach as well. That is why we see a small car market in Pakistan which is further declining. You need solid economies of scale to get good pricing. This actually goes for any product or service.
 

OverTheHorizon

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National Highways, Urban road infrastructure is very good for a country with our per capita gdp lvls - it's wrong to invest more in that sector as of now

Automobile industry generally lacks in volume due to market protection resulting in a monopoly of some, it's less of a infrastructure issue than a bad policy one

Although as I have maintained cars should be expensive "if" countries are already investing in public transportation
Pakistan needs to build out Railways, especially freight services. But it has no money. So have to rely on roads for now.
 

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Ok then. The issue of lack of purchasing power owing to high poverty levels in pakistan remains. Further fuel prices are out of reach as well. That is why we see a small car market in Pakistan which is further declining. You need solid economies of scale to get good pricing. This actually goes for any product or service.
The prices are directly linked to the FX rate where PKR has taken a massive devaluation v the US $. Money is not the issue. People don't pay income taxes so purchasing power may have been affected for the poor but not the elite.
 

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Input costs of cars keep increasing as the value of a currency goes down because global suppliers which charge in USD. Don't know enough about Pak - but in India - a sedan which would cost 10 lakh OTR in India 10 years ago would be between 20-22 OTR now.
 

Fatman17

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Input costs of cars keep increasing as the value of a currency goes down because global suppliers which charge in USD. Don't know enough about Pak - but in India - a sedan which would cost 10 lakh OTR in India 10 years ago would be between 20-22 OTR now.
Exactly. Not enough local parts manufacturers of quality available
 

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Input costs of cars keep increasing as the value of a currency goes down because global suppliers which charge in USD. Don't know enough about Pak - but in India - a sedan which would cost 10 lakh OTR in India 10 years ago would be between 20-22 OTR now.

India faced a near doubling of the price level in that time period though:


There is only some intersection with import/export and exchange rate.

India for example (in 2021) exported around 6 billion in cars and 6 billion in auto parts.

Importing around 4 billion in auto parts and a small nominal amount in cars that year.


i.e Its a ~ 8 billion surplus in this industry (trade/XR effect wise) that year , not a deficit.

So the price increase is general rupee driven....assuming taxes (excise and sales etc) are held at same for cars.

W.r.t Pakistan, the main reason its cars are more expensive than say neighbour India (when equivalent cars are being compared in same year) is due to Pakistan investment in this industry being very low.

The more you invest, the more of the supply chain you bring into local currency and the larger economy of scale you develop that keeps the reference price level lower.

Pakistan fundamental investment rate (Gross fixed capital formation) is at around 10% of GDP for a very long stretch of time, whereas India normally is around three times higher at 30%.

This has left a very large void of opportunity cost in Pakistan's economy especially anything to do with industry, manufacturing and so on that are more capital intensive than other sectors.

The crux of the problem lies with how does Pakistan improve its investment rate.
 
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