If you were thinking of buying a car in Pakistan but were confused about prices, you were not alone. The regulatory duty (RD) on imported cars has expired, leading to speculation that the prices will go down.

The government initially imposed the regulator duty on cars on August 1, 2022 for six months. It then extended this two months in January 2023. By March 31, 2023 then, this regime ended.

The president of the All Pakistan Motor Dealers Association, HM Shahzad, told Aaj News that he felt removing the duty was a significant step by the government. However, he this will have a direct impact on the government’s revenue stream.

Shahzad pointed out that the imposition of a regulatory duty on the 660cc cars, which are the smallest and most affordable, was unprecedented in Pakistan. When the government suddenly decided this, the unexpected development disrupted the market and left car buyers uncertain about the future pricing of imported vehicles.

How will this affect prices now?

The removal of regulatory duty on imported cars has not brought prices down as expected. Airaf Paracha, an imported cars dealer, explained that this unexpected outcome could be because any deflation was offset by a sharp increase in the dollar’s rate and a new sales tax.

When the regulatory duty was initially imposed in 2022, the dollar hovered between Rs190 and Rs200, and was accompanied by an 18% sales tax on the cars. However, since then, the dollar has climbed to Rs300, and the sales tax has risen by 7% to 25%. As a result, the end of the regulatory duty has been offset by the surge in sales tax, effectively eating into any relief for a car buyer.

Car prices

A 660cc used car has gone from Rs700,000 to Rs750,000 since August 2022 despite the end of the duty. “Even if the regulatory duty were lifted by one million rupees,” Paracha added, “the overall price of cars would not drop by the same amount due to the significant rise in costs associated with the fluctuating dollar exchange rate and increased sales tax.”

This is still a good time to buy, however, Airaf Paracha argues.

According to industry experts, if the dollar-rupee rate stays stable, the prices of imported 660cc cars may drop by about Rs150,000 to Rs200,000 in the next two months. But this would entirely depend on how the rupee performs.

To bring about a meaningful change in car prices, Shahzad argued that the government should consider reducing the dollar rate to Rs250 and cut the duty on cars by Rs300,000 to Rs400,000.

Airaf Paracha pointed out that the market has already seen a drop in prices. For instance, a Mira, which was previously sold for Rs3.8 million can now be bought for Rs3.6 million. He cautioned that this is expected to be a short-term effect.

Local cars dominate the market

According to HM Shahbaz, locally assembled cars dominate the Pakistan market and the share of imported cars is around 15% to 20%. However, when it comes to imported cars, almost all of them (99.9%) are used.

These used cars are sent by overseas Pakistanis along with dollars in the form of import duties. Importing cars is good for Pakistan because it helps increase foreign exchange reserves. And imported Japanese cars are more fuel-efficient than the local ones, he added.

Airaf Paracha said many middle-income people who want to buy small imported cars are finding it difficult because the prices have gone up. Cars that used to cost between Rs1 million to Rs2 million now cost between Rs2.5 million to Rs3 million. And cars priced between Rs1 million to Rs1.5 million are hard to find.

Price chart

The vice president of the Automotive Traders and Importers Association, Rizwan Khan, shared this price chart with Aaj News. He speculated that 660cc cars may see a drop of Rs100,000 to Rs150,000 in prices.

Social media rumors impact market

Social media has become a breeding ground for false information on prices, with the motive of discouraging buyers, said Airaf Paracha. “There is propaganda circulating on social media that aims to keep buyers away.”

The removal of the regulatory duty has raised expectations that prices will now drop. This has resulted in a noticeable decline in “the rush” in the market as buyers hold off.

Rizwan Khan said there is no possibility that the government will impose the regulatory duty again because it will slow down the industry, and cut into government revenues.

“To impose a duty is not the decision of the Federal Board of Revenue, it is the decision of the Ministry of Commerce and Trade,” he added.

Prices of imported vs locally assembled cars

Airaf Paracha argued that the impact of fluctuating prices on locally assembled cars is minimal. He explained that the buyers of local cars and imported cars are different, but the fluctuation does increase competition in the market, providing buyers with more options.

To illustrate, he provided an example: a buyer looking for a local car priced at Rs2.5 million may now consider an imported car in the same price range due to increased competition.

He highlighted that a wide gap between demand and supply in the market, with typically three buyers for every car, can mean some sellers charge inflated prices. These practices are illegal, and there is no law to prevent it.