Auto Industry Rings Alarm Bells Over GST Hike in Budget 2025-26
The proposed increase in general sales tax (GST) from 12.5% to 18% on small-engine vehicles has triggered serious concerns within Pakistan’s auto industry, particularly among Original Equipment Manufacturers (OEMs) and parts vendors. At the forefront is Pak Suzuki Motor Company, whose Managing Director Hiroshi Kawamura has warned that the hike could severely disrupt the sector’s growth, affordability, and employment prospects.
During a high-level meeting with Special Assistant to the Prime Minister on Industries, Haroon Akhtar Khan, Kawamura expressed deep reservations over the budget proposal, pointing to wide-ranging negative impacts.
Sales Tax Hike Threatens Affordability, Demand & Jobs
According to Pak Suzuki, the current 12.5% GST has allowed for sustainable growth in the low-cost vehicle segment, particularly below 850cc, which caters to Pakistan’s lower and middle-income groups. Increasing this rate to 18% could cause a steep rise in vehicle prices, making cars less affordable for a large portion of the population.
“The impact of higher sales tax is always borne by customers,” Kawamura stated, highlighting how cost-sensitive the entry-level vehicle market is in Pakistan.
He further warned that the knock-on effects would dampen demand, reduce production, and lead to significant job losses across the auto value chain. The 2.5 million direct and indirect jobs currently supported by the auto industry could be at serious risk if the proposed tax hike is enacted.
A Blow to Local Manufacturing & Investment Confidence
The tax increase, especially during a period of stagnant economic recovery, could derail local manufacturing efforts, making it harder for OEMs and vendors to operate competitively. With inflation already high, the proposed tax risks creating further bottlenecks in consumer demand and production stability.
“This is not just a cyclical dip; these are policy-induced structural risks,” one auto analyst noted.
For local assemblers and vendors who depend heavily on economies of scale, such fiscal changes can lead to disruptions in supply chains, layoffs, and a potential freeze on future investments.
Government Reassures but Industry Wants Clarity
In response to the concerns raised, Haroon Akhtar reaffirmed the government’s commitment to supporting the auto sector. He emphasized Prime Minister Shehbaz Sharif’s vision of a strong, locally-driven auto industry, noting its critical role in employment and industrial development.
“Progress demands unity and collaboration. The auto industry is a vital source of employment and local manufacturing strength,” he said.
However, stakeholders are seeking clearer policy direction rather than verbal reassurances, particularly given the fragile state of demand in the aftermath of 2022–23’s economic contraction.
Master Changan Echoes Industry Concerns, Pushes for NEV Transition
In a separate meeting, Master Changan Motors CEO Danial Malik also discussed the implications of the fiscal budget and emphasized the importance of transitioning to New Energy Vehicles (NEVs), particularly electric vehicles (EVs).
He called for consistent, long-term policy support to help the industry navigate current challenges and pivot toward cleaner mobility solutions. In response, Haroon Akhtar confirmed that the government is finalizing an Electric Vehicle Policy, which is expected to include:
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Incentives for EV manufacturing and adoption
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Infrastructure development for charging
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Investment facilitation mechanisms
“Our EV policy will provide a comprehensive framework to attract investments and support industrial sustainability,” Akhtar stated.
Conclusion: The Auto Sector Stands at a Crossroads
The proposed 18% GST on small cars comes at a precarious time for Pakistan’s auto industry, which is still recovering from years of currency devaluation, import restrictions, and consumer spending pullbacks. The industry fears that short-term revenue goals are being prioritized over long-term industrial growth.
With over 2.5 million livelihoods at stake and local manufacturing viability on the line, the government’s final decision on GST in the upcoming Budget 2025–26 will be critical. Whether it listens to the sector’s warnings or proceeds with the tax hike could shape the trajectory of Pakistan’s auto industry for years to come.