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 800cc	2,400	4,800
801 to 1000cc	3,000	6,000
1001 to 1300cc	6,600	13,200
1301 to 1500cc	9,295	18,590
1501 to 1600cc	11,275	22,550
1601 to 1800cc	13,970	27,940

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 800cc	10,000	0.5% of value
851 to 1000cc	20,000	1% of value
1001 to 1300cc	25,000	1.5% of value
1301 to 1600cc	50,000	2% of value
1601 to 1800cc	150,000	3% of value
1801 to 2000cc	200,000	5% of value
2001 to 2500cc	6% of value	7% of value
2501 to 3000cc	8% of value	9% of value
Above 3000cc	10% of value	12% of value

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

Model	Engine Capacity (cc)	Current Ex-showroom Price (Rs)	Expected Ex-showroom Price (Rs)
Alto VXL AGS	Up to 850cc	3,055,000	3,060,225
Cultus Automatic	851 to 1000cc	4,566,000	4,591,460
Swift GLX CVT	1001 to 1300cc	4,744,000	4,789,785
Yaris GLI MT 1.3	1301 to 1600cc	4,529,000	4,568,580
Haval H6 HEV	1301 to 1600cc	11,916,500	12,103,830
Civic Oriel	1301 to 1600cc	8,709,000	8,832,180
Corolla Altis X CVT-i	1601 to 1800cc	7,699,000	7,775,470
Sportage AWD	1801 to 2000cc	8,670,000	8,893,500
Sonata 2.5	2001 to 2500cc	11,587,900	11,695,100
Fortuner GR-S	2501 to 3000cc	21,492,120	21,689,910
Sorento 3.5 FWD	3000cc and above	10,450,100	10,638,880

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.