Budget 2024-25 withdraws tax credits for hybrid vehicles to boost local car industry

KARACHI:

Presenting the budget for the financial year 2024-2025, Finance Minister Muhammad Aurangzeb announced several reforms, including the withdrawal of concessions on customs duties on the import of hybrid vehicles to promote the local auto industry.

Aurangzeb noted that earlier there was a significant price difference between hybrid and regular vehicles due to new technology. However, since hybrid vehicles are now produced locally, concessions are no longer necessary. The withdrawal is aimed at supporting the domestic car industry. In addition, concessions for the import of luxury electric vehicles (EVs) will be removed, as buyers who can afford to pay $50,000 or more for an EV will also have to be able to pay the taxes and duties due.

The minister also proposed a shift from engine capacity-based advance tax for vehicles up to 2,000 CC to a cost basis, reflecting significant increases in vehicle prices.

He highlighted the government’s commitment to climate mitigation by announcing Rs 4 billion for electric bikes.

Auto sector analyst Mashood Khan commented, “The government’s decision to discourage the import of luxury vehicles is a positive step. However, steps should have been taken to boost production of trucks and buses as this sector has sufficient capacity.” The continued import Buses waste foreign exchange Moreover, there is no incentive for small cars to relieve the middle class.’

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Khan also highlighted the budget’s shortcomings in addressing the needs of SMEs, noting the lack of significant incentives or supportive policies, apart from export credits.

He stressed that supporting both the automotive industry and SMEs is vital for economic growth and stability.

Reacting to the budget, auto industry experts and analysts urged the government to provide more incentives to the ailing auto industry and reduce heavy taxes on passenger cars to make them affordable for the middle class.

Finance Minister Aurangzeb said: “We are working on a domestic reform agenda. The country will return to sustainable growth through the necessary reforms. The private sector must play a central role in the national economy, prioritizing the larger population over a few individuals. Decades of structural factors have limited investment, growth and exports.

“We need to implement structural reforms to break the cycle of low growth, shift to a market-driven economy and promote savings and investment-based growth. Like other modern economies, we will limit the role of the state to essential public services while pursuing regulatory reforms and large-scale privatization Establishing a broad fair tax base is mandatory to provide a level playing field and eliminate anti-export distortions.