Auto industry in crisis

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THE automobile industry is going through worst crisis amid rising prices due to imposition of new, higher taxes in the budget and steep currency devaluation during the last several months. This is evident from the fact that followed by Honda, Toyoto company too has been forced to shut down its production for half a month this month due to falling demand for new cars.
It is alarming that all those sectors which were flourishing previously and contributing significantly to economic growth and national kitty are facing serious problems due to higher taxes and devaluation. We have all along been pleading in these columns that the there must be a balance between the need for revenue generation and economic growth. What would be the benefit of increase in taxes if production comes down and demand reduced for different products as we are witnessing in the case of locally manufactured/assembled cars? Auto industry was the highest tax-paying industry during the last government’s tenure followed by cigarette, tobacco, telecom sectors. It was because of the rising demand for cars that a number of reputed companies of the world expressed their willingness to invest billions of dollars in Pakistan to come out with new products. The automotive industry in Pakistan has been one of the fastest growing industries of the country, accounting for 4 percent of Pakistan’s GDP and employing a workforce of over 1,800,000 people. The situation has, however, changed and the already established plants are forced to opt out for non-production days due to sharp fall in demand. The higher taxes have suppressed demand as cars have now reached beyond the capacity of the middle class. The situation has reached to such an alarming extent that the companies are now offering incentives like voluntary registration and hassle free delivery on bookings but there are no customers in the market. The closure of plants not only means less taxes for the Government but also joblessness in the backdrop of slogans repeatedly raised for creation of more job opportunities for our skilled and semi-skilled labour force. This gloomy picture requires urgent attention of the policy and decision makers as apart from hurting the economy the situation is also sending negative and dampening signals to prospective investors. It is time to review the decision of imposition of additional taxes and duties to provide breathing space to the auto industry and provide relief to people.

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