HE ongoing economic crisis has affected all the industries in the country.

Large scale manufacturing is

shrinking with every passing month. This crisis is engulfing Pakistan’s auto industry as well and as a
result its earning capabilities are shrinking, and domestic demand is on the decline. Currency
devaluation, higher taxes in the last budget, high custom duties on inputs, consumers’ low purchasing
power and the higher fuel prices are some of the reasons behind the declining performance of
automotive industry. Although this industry was one of the highest tax paying sectors until recent past
but over the last two years, most of the prominent manufactures are showing deficits due to reduction
in sales. They have also laid off significant number of employees. Several local manufacturers have
either reduced their production to only a few days a week or started closing down their plants
altogether for several days every month. Market sources have confirmed at least seven per cent
decrease in sales during the fiscal year 2018-19. Among the aforementioned factors, higher taxes is
considered as one of the major factors behind this crisis which resulted in high prices for vehicles.
Government is of the view that higher taxes are necessary to generate revenue. However, there can be
an alternative to higher taxes and high prices. The ongoing crisis can be compared to the Canadian auto
industry crisis during and after the Great Depression. Canadian automobile sector was booming due to
their tariff policy and preferential export status from the Commonwealth countries. However, during the
Great Depression, this industry was facing a severe over-capacity in the face of a demand shock due to
severe decline in consumer income. Reacting to this situation, Canada reversed their tariff policy and
implemented a high tariff on imported vehicles along with introduction of new general tariffs and excise
duties.