Car Price Hike in Pakistan explained by industry insider

The price of cars in Pakistan has been steadily rising for several years, creating difficulties for middle-class families looking to purchase a vehicle within their budget.

But what exactly is driving these high prices? What role do government taxes and dealer margins play in the escalating costs?

In an interview with ARY News program ‘Khabar’, Chief Executive Officer (CEO) of the Indus Motors Company, Ali Asghar Jamali, shed light on the issue, offering a detailed explanation of the factors contributing to the rising car prices in Pakistan.

Jamali explained that the government’s taxes are the primary contributor to the expensive cars.

Jamali acknowledged that cars in Pakistan have become so expensive, saying that the government is the largest stakeholder in the price of each car, whether imported or locally manufactured.

He provided the example of the Toyota Fortuner, one of the most luxurious vehicles in the country, saying that its on-road price stands at Rs 23 million, with over 60% (Rs 14 million) attributed to taxes.

“These include 25% sales tax, 10% Federal Excise Duty (FED), 1% CVT, an 8% withholding tax on the car’s registration, customs duties, and income tax”, he said. “The remaining Rs 9 million covers production costs, including parts, assembly, employee salaries, dealer margins, and other overheads”.

CEO of Indus also cited the example of the Suzuki Alto, priced at around Rs 2.8 million, where up to 40% of the cost is consumed by taxes, leaving only Rs 1.6 million for production costs. This translates to about $5,000-$6,000 for manufacturing the car.

Jamali attributed the higher prices in Pakistan to lower production volumes. Jamali emphasized that when comparing the Alto prices with India, the Pakistani version seems more expensive because of the much lower production volume.

He noted India manufactures about 5.8 million vehicles annually, while Pakistan’s car production is much smaller. He added that in 2021 and 2022, Pakistan produced about 300,000 cars annually, but production has since declined to just 150,000 to 200,000 vehicles per year.

Notably, the automotive industry in Pakistan has been facing challenges, including high taxes, low production volumes, and a decline in car sales. The government’s tax policies have been criticized for making cars unaffordable for the middle class.