Federal Budget FY25: Impact on the auto sector

AUTO SECTOR
Posted by: KSEStocks News 0

Federal Budget FY25: Impact on the auto sector

Changes in taxes and duties for hybrid and luxury EVs

The Federal Budget FY25 has introduced significant changes for the auto sector, particularly for hybrid electric vehicles (HEVs) and luxury electric vehicles (EVs).

Impact on hybrid and luxury EVs

The government has decided to remove the concessionary duties on imported hybrids and luxury EVs valued above $50,000, subjecting them to a 25% tax. Additionally, the Finance Bill proposes increasing the GST on local hybrids from 8.5% to 25%, aligning it with the GST on petroleum cars.

While this move could benefit local HEV assemblers by discouraging imports, the increased GST could lead to a rise in ex-factory prices, potentially reducing demand. However, Finance Minister Mr. Aurangzeb announced in a recent speech that the reduced sales tax rates on HEVs would remain at 8.5%.

Rise in imported cars

The removal of regulatory duty on cars below 1,800cc in April 2023 led to a significant influx of used imported cars, with a 3.7 times year-over-year increase in the first eleven months of FY24. Hybrid variants of these vehicles also enjoyed a 50% concession on mandatory taxes and duties.

New mandatory duties and taxes on imported hybrids

Engine Capacity (cc)Current Duty and Taxes (USD)Proposed Duty and Taxes (USD)
Up to 800cc2,4004,800
801 to 1000cc3,0006,000
1001 to 1300cc6,60013,200
1301 to 1500cc9,29518,590
1501 to 1600cc11,27522,550
1601 to 1800cc13,97027,940
Source: Budget documents, JS Research

Advance tax is now based on car value

Another major proposal in the Finance Bill is to shift the basis of the advance tax from engine capacity to the car’s value, starting from FY25.

New advance tax regime

Engine Capacity (cc)Current WHT (Rs)Proposed WHT (%)
Up to 800cc10,0000.5% of value
851 to 1000cc20,0001% of value
1001 to 1300cc25,0001.5% of value
1301 to 1600cc50,0002% of value
1601 to 1800cc150,0003% of value
1801 to 2000cc200,0005% of value
2001 to 2500cc6% of value7% of value
2501 to 3000cc8% of value9% of value
Above 3000cc10% of value12% of value
Source: Budget documents, JS Research

This measure aims to standardize the advanced tax regime and prevent auto assemblers from favoring lower cc turbocharged engines.

Impact on vehicle prices due to advance tax changes

ModelEngine Capacity (cc)Current Ex-showroom Price (Rs)Expected Ex-showroom Price (Rs)
Alto VXL AGSUp to 850cc3,055,0003,060,225
Cultus Automatic851 to 1000cc4,566,0004,591,460
Swift GLX CVT1001 to 1300cc4,744,0004,789,785
Yaris GLI MT 1.31301 to 1600cc4,529,0004,568,580
Haval H6 HEV1301 to 1600cc11,916,50012,103,830
Civic Oriel1301 to 1600cc8,709,0008,832,180
Corolla Altis X CVT-i1601 to 1800cc7,699,0007,775,470
Sportage AWD1801 to 2000cc8,670,0008,893,500
Sonata 2.52001 to 2500cc11,587,90011,695,100
Fortuner GR-S2501 to 3000cc21,492,12021,689,910
Sorento 3.5 FWD3000cc and above10,450,10010,638,880
Source: Budget documents, JS Research

Overall impact of the budget on the auto sector

The budget appears to be a mixed bag for the auto sector. It provides some benefits for HEV assemblers but also increases prices across the board due to higher taxes. The long-term profitability of the sector will likely depend on a stable PKR/USD exchange rate and lower interest rates, which are crucial for higher auto financing and improved consumer purchasing power.

Disclaimer:

The information in this article is based on research by S Research. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.

Share this post

Leave a Reply

Your email address will not be published. Required fields are marked *