SMEDA member criticises tax relief on luxury vehicles

KARACHI: Mashood Ali Khan, a member of the Small Medium Enterprise Development Authority (SMEDA), recently criticized a proposed tax relief for luxury vehicles priced over PKR 10 million. Khan argued that the government should instead reduce sales tax on smaller cars, under 1000cc, from 18 percent to 9 percent. He believed that this tax reduction would directly benefit small and medium-sized auto parts manufacturers by boosting production and creating more jobs.

Khan also pointed out that the cost of importing complete knockdown (CKD) and semi-knockdown (SKD) kits amounted to USD 2.118 billion in the fiscal year 2026 alone, and had reached USD 6 billion over the past four years. He emphasized that this level of spending was unsustainable under the current International Monetary Fund (IMF) program.

Khan also noted that historical policies had favored a small high-end buyer base, while localization among Chinese and Korean luxury brands had remained minimal over the past decade, providing little advantage to SME parts manufacturers.

"Should limited fiscal space be used to reduce the tax burden on luxury vehicles when millions of Pakistanis continue to suffer the consequences of economic adjustment?" Khan questioned. He added that the timing of this tax relief was particularly problematic, as ordinary citizens were already facing higher taxes and inflation.

While Khan acknowledged that promoting cleaner transportation was a valid concern, he stressed that any such tax relief should be accompanied by binding localization targets and a commitment to keep at least one model in production in Pakistan for five years without annual model changes.