Half the price of a Fortuner in Pakistan is tax

Twenty-five years at one company

The episode opens with Muzamil framing the conversation around what he calls Pakistan’s familiar trauma — a tentative return to economic stability after two punishing years, and the suspicion that the country will once again chase a boom and burn through it. He introduces Ali Asghar Jamali as the head of one of Pakistan’s largest companies by revenue, the assembler of Toyota vehicles through Indus Motor Company, and asks him to begin with the personal story.

Jamali’s answer is short and matter-of-fact. He finished his chartered accountancy in 1999, spent six months at EY as an external auditor on the Indus Motors account, and was pulled inside the company in 2000. “All my life I have been here,” he says. Twenty-five years later he has rotated through internal audit, finance, marketing, sales, parts, and corporate planning, and completed an executive program at Harvard Business School compressed into four or five months of eighteen-hour days. The program left him with a recognition he did not expect: “We also are nothing less.”

What actually drives the price of a car

When Muzamil asks why the long-promised automotive boom keeps failing to arrive, Jamali offers a precise breakdown rather than a vague complaint. Every time the sector grows, he says, the government adds new taxes — because taxes are easier to add than reform is to deliver. On a Toyota Fortuner with an on-road price of roughly 2.3 crore rupees, he estimates that 1.4 crore goes to the government of Pakistan. On a Corolla the tax share is around 48 percent, on the Yaris 43 or 44 percent, and even on the entry-level Alto it sits near 40 percent. “The biggest stakeholder is the government of Pakistan,” he tells Muzamil. The cars are locally assembled. The taxes are not a tariff on imports; they are layered on the domestically produced vehicle.

Later in the discussion Jamali and Muzamil work through the comparison live, on a calculator. The ex-factory price of a Pakistani Corolla is 15,803 dollars at an exchange rate of 279.42 rupees. The on-road price translates to roughly 27,500 dollars. The gap — close to 11,700 dollars per car — is government taxation. Jamali laughs when Muzamil arrives at the same number he had in front of him. “I am so happy that you calculated and I have the same figure.”

Across the region the picture is starkly different. In the UAE the same Corolla carries a five-percent tax burden. In Thailand it is 25 percent, in Vietnam 42 percent, in the Philippines 22 percent. Pakistan, at 43 percent before on-road taxes and 48 percent including them, is the most heavily taxed market in its neighbourhood.

The auto-financing collapse

The second pillar of Jamali’s diagnosis is auto financing. Everywhere in the world, he tells Muzamil, more than 80 percent of cars are sold on finance. In Pakistan that figure peaked at 57 percent in 2004 and crashed afterwards as banks absorbed delinquencies. It recovered to 45 percent and then collapsed again. Today it sits at 13 percent.

The reasons compound on each other. Interest rates fluctuate wildly. Religious sensitivities reduce some appetite for conventional bank financing. And the government of Pakistan has imposed a 3,000,000 rupee cap on the amount that can be financed — a ceiling that excludes a large share of the market by definition. “If 15 percent financing is happening, then 85 percent of people are buying in cash,” Jamali says. “Means the full amount.” That is not how cars are bought anywhere else. Elsewhere, he points out, the consumer does not know the price of the car — they know the monthly payment.

Per-capita income closes the loop. The middle class, he tells Muzamil, begins growing meaningfully at around 3,000 dollars per capita. Pakistan is at fifteen to seventeen hundred. India is at twenty-four to twenty-five hundred. India’s burst is coming because it is approaching the 3,000-dollar line; China crossed it; Pakistan has not. The number of cars per thousand people tells the same story — 600 to 700 in Western markets, 23 or 24 in India, 11 to 13 in Pakistan.

The dollar-drain myth

A long stretch of the conversation is given over to dismantling what Jamali calls a manufactured narrative — that the auto industry is bleeding Pakistan’s foreign exchange. The numbers he cites tell a different story. In 2023 the total import bill of the entire automotive sector, every player included, was 557,000,000 dollars. That is 1.2 percent of the national import bill. In the best year the industry has ever had, when it produced 350,000 cars, automotive imports reached 1.8 billion dollars against a national import bill of roughly 75 to 80 billion.

“This is different mafias which discuss this over their own interest,” Jamali says, “and then a little lack of knowledge. Once one person starts saying something, everyone says it. No one looks at the data here.” Muzamil pushes back gently — half a billion dollars is nothing in the grand scheme of things — and Jamali agrees. The current account problem in Pakistan, he argues, is not an automotive problem.

Localisation, properly defined

Jamali splits the local product lineup into two baskets to answer Muzamil’s question about how much of a Pakistani Toyota is actually Pakistani. The first basket — Yaris, Corolla, and Corolla Cross — is more than 60 to 65 percent localised by value once taxes and duties are stripped out. The Revo and Fortuner basket sits at 40 to 45 percent because volumes are lower. He is careful with the definition. “If I had to say parts, I could sit here and say I am 90 percent localised,” he tells Muzamil — but that is misleading, because removing the engine and transmission empties the headline. Value, not part count, is the honest measure.

What does that 65 percent look like physically? Indus Motors operates what Jamali describes as the largest press shop in Pakistan. The Corolla begins as an imported sheet of steel — Pakistan does not produce automotive-grade steel — and the entire body is pressed, stamped, and assembled in the Karachi plant. “Any part that you can see and touch in the Corolla, there is more than 90 percent chance that it is made in Pakistan,” he tells Muzamil later in the conversation. New entrants are not yet at this level of localisation; the government policy that brought them in gave them initial sales-tax exemptions in exchange for a localisation glide path that is only now starting to bite.

The case for long, boring policy

When Muzamil pivots from automotive specifics to the broader structural question — what is actually wrong with Pakistan’s industrial base — Jamali makes the most pointed argument in the conversation. Pakistan does not have a long-term policy, he says, and without one no foreign direct investment will come at the scale required. “If you have a twenty-year policy for five years, the people will think — these people will change the policy back, can they be trusted or not?” Past governments have trained investors to expect that every new administration rewrites the rules.

He then offers a thought experiment about industries Pakistan has never seriously tried to build. The country has 250 million people. Assume each person needs at least one pair of shoes a year, perhaps two. That is a billion-pair market. “Can we have a policy for shoes? Then Adidas will also come, Puma will also come.” He extends the same logic to toys — Pakistan has the world’s third-largest population of children and imports almost all its toys from China. He returns to automotive raw materials. Cars need four primary inputs — steel, resin, copper, and aluminium — and Pakistan produces none of them at automotive grade. A twenty-year policy with a credible tax framework could attract the 23-billion-dollar investment required to build automotive steel domestically. Without that horizon, no one will commit.

Then he pivots to a contrast he is clearly proud of. “I exactly know what is going to happen in 2030. I exactly know what is going to happen in 2032,” he tells Muzamil, describing how Indus Motors plans. “But a country should have a fifty-year plan, fifteen years, twenty years — twenty is the minimum for a country.”

Three and a half percent, not seven

Jamali’s macro prescription is unfashionable and deliberate. The Pakistani habit, he tells Muzamil, is to chase 6 or 7 percent growth, which immediately turns the economy into an import-dependent system, blows out the current account, and ends in another contraction. The recovery from that contraction is brutal — it takes massive coordinated effort to drag the economy back from the floor. “It’s always easier if you are growing slowly.”

His recommended path is three to three and a half percent sustained growth for the next five to seven years, while remittances and exports are deliberately built up underneath. Once the base is strong, the economy can sustain six or seven percent without breaking. Foreign direct investment is the bridge across the gap, and that bridge only exists with long-term policy stability. India’s reserves, he points out, are built on FDI. Pakistan does not get FDI because Pakistan changes its mind every few years.

Why electric is not the silver bullet

Muzamil presses Jamali on electric vehicles, asking whether the macroeconomic case is stronger than people realise — fewer engine and transmission imports, less petrol dependency, lower long-run consumer cost. Jamali’s answer is one of the most careful sections in the conversation, and it cuts against the narrative that electric is the obvious solution.

He is not against electric vehicles. He says he would like to drive one. But the numbers, he insists, do not say what people think they say. The cost of an electric vehicle, even stripping out the engine and transmission, is meaningfully higher than an ICE vehicle because of battery cost. If those batteries and components are imported, the import bill rises rather than falls. Pakistan’s tax base loses revenue too — EVs currently carry almost no duty — which widens the fiscal deficit.

The fuel-substitution argument is the one Jamali dismantles most directly. Around 68 percent of Pakistan’s electricity is generated from imported oil, gas, and coal. “You bring oil from outside, you bring gas from outside, and then you produce electricity from it. So your import bill is not going to change, because you are bringing the same thing.” The climate case fails for the same reason: switching to electric in a country whose grid runs on imported hydrocarbons does not lower emissions. And building the charging infrastructure required would itself cost at least four billion dollars.

His conclusion is not that electric should be blocked — he agrees it will arrive and will reshape the Pakistani market within two or three years — but that it should not be sold to the public as a macroeconomic free lunch. “From its coming, our oil shortage will reduce, our imports will reduce — this is the wrong thing. From its coming our climate will improve — this is the wrong thing. From its coming we will lose in taxes — this is the right thing. From its coming there will be pressure on our import bill — this is also the right thing.”

Toyota’s strategic patience

Muzamil asks the natural follow-up. China has broken into global automotive in a way it never could with combustion vehicles. BYD is exporting. Has Toyota — and by extension Indus Motors — been late?

Jamali concedes the point but defends the philosophy. Toyota’s position, he tells Muzamil, is that there is no single solution to the global automobile market. Singapore can go all-electric. Pakistan cannot, because of long motorway distances, rough terrain that needs diesel, and a grid that cannot yet support the transition. Toyota wants to be present in every segment — gasoline, diesel, hybrid, plug-in, full electric, hydrogen — and let each market choose. The corporate identity, he says, is not “all electric.” It is mobility.

He acknowledges the criticism that this is slow. “Toyota’s philosophy is that you bring the right product, even if it is a little late.” Whether that strategy holds against a Chinese competitor that has compressed cost curves through scale and automation is a question he does not fully answer, but he points to recent Toyota announcements of 600 to 800 kilometre range vehicles as evidence the company is moving.

Exports, raw materials, and the FTA problem

When Muzamil asks why Pakistan has not become a regional export base in the way Thailand did, Jamali separates the question into three pieces. Thailand’s export strength, he points out, is built on domestic scale — a high-volume local market that justified the localisation of common parts and brought costs down to export-viable levels. Pakistan does not yet have that scale.

The second piece is raw material. “How do you want me to compete with countries who have their own raw material industry?” he asks Muzamil. Without local steel, resin, copper, or aluminium, every export-bound vehicle carries an inefficiency the competitor does not.

The third is free trade agreements. Pakistan does not have FTAs with the African markets Jamali sees as the natural target — Kenya, Tanzania, Congo, Morocco — so a 30 percent incoming duty wipes out any pricing room. South Africa, by contrast, has FTAs across the continent. Indus Motors is exporting, he tells Muzamil — vehicles, parts, and manpower — but at a loss, into the few markets where incoming duties are low enough. The role of the government, he argues, is to fix the things that the industry cannot fix: raw material policy, cost of doing business, and FTAs.

The used-car distortion

One of the sharper passages in the conversation is Jamali’s takedown of Pakistan’s used-imported-car regime. The “transfer of residence” and personal-baggage allowances, he argues, are being systematically misused as a commercial trade channel. Hawala money leaves Pakistan, comes back as old auctioned cars, and is cleared as personal imports. No real employment is created — a couple of cleaners and someone to wind back the odometer — but the trade competes directly with locally manufactured vehicles that support hundreds of thousands of jobs.

The asymmetry he highlights is striking. Under current rules, the entry-level Alto can be imported up to three years old. The Toyota Land Cruiser can be imported up to five years old. “Really?” Muzamil asks. “Yes, yes, yes,” Jamali confirms. The policy, in his reading, protects the high-end second-hand luxury trade while squeezing the affordable-car segment that ordinary buyers actually need.

He also pre-empts the safety question. Modern cars dent more easily than older ones not because quality has fallen but because cabins are now designed to remain rigid while the body collapses around them. “In our time we had it that we wanted the car to survive even if the person died. Now it is the opposite.”

The size of what is actually at stake

Near the end Muzamil asks for the scale of the sector. Jamali gives it cleanly. The automobile industry contributes four to five percent of Pakistan’s GDP. Indus Motors alone contributes more than one percent of total tax collection in Pakistan — a single company carrying one percent of national revenue. The broader ecosystem, including parts manufacturers and dealerships, supports more than two and a half million jobs.

Pakistan in 2050

Muzamil closes by asking the question he says he has put to more than four hundred and fifty guests — how do you see Pakistan in 2050? — and notes that he is tired of the boilerplate answer about the youth bulge. Jamali declines to give the boilerplate. He frames his answer through the contrast with India, which in 1990 sat in roughly the same place Pakistan does today and which built thirty-five years of broadly consistent policy on top of Manmohan Singh’s reforms.

His own answer is conditional. If Pakistan keeps doing what it is doing now, 2050 will look like today. If it takes the reforms that are visibly required — long-horizon policy, raw material industries, FTAs, financing reform, sustained 3 to 3.5 percent growth — then the youth population, the geography, the coastline, all of it becomes usable. “Potential is tremendous, but what do you do with potential if you do not use it and do not streamline it?”

He closes on his own metaphor. Five or six years ago he committed to planting a million trees with a single condition — that they be sustainable, that they actually survive. Five years in, the count is 870,000. The remaining 130,000 are difficult because the condition is difficult. “If I told my team to plant a million trees, they would do it in a week. They would hire people, pay them, and they would die.” Sustainability is the harder commitment, and the one Pakistan has consistently refused to make.

Muzamil thanks him, notes the cautious realism in the answer, and wraps the episode.