Honda Atlas Cars Pakistan (HCAR) is deliberately keeping the Honda City priced below Rs5 million to shield buyers from a steep sales tax increase, even as the strategy narrows the company profit margins.
According to officials, vehicles with an invoice price above Rs5 million attract a 25 percent sales tax, compared with 18 percent for those priced below the threshold.
To keep the City out of the higher tax bracket, Honda has intentionally held its pricing below this limit, preserving the affordability of the model in a price-sensitive market.
The City accounts for nearly 70 percent of total sales of HCAR, making it the largest revenue-generating model of the company and the backbone of its domestic business. The pricing decision therefore carries significant weight for the automaker.
Profitability remained under pressure throughout MY26 after higher import costs pushed up production expenses. The company attributed the rise to currency movements, with fluctuations in the Thai baht and the US dollar increasing the cost of components imported from Thailand.
Rather than passing the full cost burden on to customers through higher prices, Honda absorbed a portion of the increased expenses to keep the City below the Rs5 million mark. The move has helped protect sales volumes but has squeezed margins at a time when manufacturing costs continue to rise.
Policy uncertainty around hybrid vehicles adds to the challenges facing the company. The government has proposed raising customs duty on selected hybrid vehicle components from 4 percent to 5 percent, though the measure has not yet been finalized.
The existing tariff structure remains unchanged in the meantime. Non-localized CKD components attract a 30 percent customs duty, while localized parts face a 46 percent levy.
Imported completely built-up (CBU) vehicles are subject to customs duties ranging from 30 to 50 percent depending on engine size, in addition to a 4 percent Additional Customs Duty and an 8 percent Regulatory Duty on applicable imported components.
Despite the cost pressures and shifting tax regime, Honda Atlas struck an optimistic note on the outlook of the industry. The company expects the automobile sector of Pakistan to grow by around 25 percent year-on-year, driven by improving demand and a gradual market recovery.
