Arsalan Ali

The sale of tyres in Pakistan witnessed an increase of 7% and reached 44 million units in the current fiscal as compared to 41 million units in the previous financial year, WealthPK reports. On the other hand, the volume of the import of tyres and tubes in the ongoing fiscal dipped to Rs41 billion as opposed to Rs60 billion in the previous year. The decrease in imports is attributed to the imposition of taxes to encourage domestic manufacturers.

Shahmir Saad, a senior research analyst at the Pakistan Credit Rating Agency Limited (PACRA), told WealthPK that Pakistan’s tyre industry was performing well as demand for tyres was dependent on the growth of the automobile sector, which was influenced by economic growth and per capita income. He said that macroeconomic variables remained vulnerable owing to political unrest in the country. He said that the devaluation of the Pakistani rupee and high import costs continued to put pressure on automotive production.

The expert said that the recent floods adversely affected the economy of Pakistan and the prices of natural and synthetic rubber remained volatile in the international market. “The tyre industry will likely remain under pressure for the next few years,” he feared. He said that despite the fact that most of the raw materials for tyre manufacturing were imported from other countries, the industry faced volatility due to exchange rate fluctuations as well as higher freight costs.

He said that the profit margin for tyre manufacturers was affected by the high rates of imported raw materials. Shahmir Saad said that the average gross margin of the tyre industry remained steady at 15% from the financial year 2018 to 2022 while its average net margin was around 3%. He said that raw materials used in the production of tyres included synthetic and natural rubber. He said that 258,134 tonnes of rubber were imported in the financial year 2021 as compared to 98,000 tonnes in 2020, showing a growth of 163%.

The increase in value term was lower, though a significant rise of 47% up from Rs25 billion in the year 2020 to Rs37 billion in 2021 was recorded, he added. According to a report recently released by PACRA, the tyre sector fetched Rs35,676 million at the end of August 22, up from Rs20,089 million at the end of the same month in the previous year, showing an increase of 78%. The tyre sector is under the Normal Tax Regime (NTR). It is also subject to a minimum tax of 1.5% of turnover if tax liability under NTR is lower than the minimum tax.

The report pointed out that in addition, a sales tax of 17% was also applicable on both the raw materials, including rubber and carbon black, as well as finished goods, i.e. tyres. In addition to sales tax, an advance tax of one percent is also applicable on the import of these products. Advance taxes are adjusted against final income tax liability and the customs duty structure applied to the sector has not changed, which protects local manufacturers, according to the report.

The report said that demand for the two and three-wheel segments was entirely met by domestic production, with Panther Tyres and Service Industries holding significant market shares. Meanwhile, Ghandhara Tyres is the only local manufacturer of passenger car tyres, despite the fact that imports dominate the market. The tyre industry is dominated by the top four players, who account for 40 to 45% of the global market in terms of revenue, according to the report available with WealthPK.

Credit : Independent News Pakistan-WealthPk