Govt imposes advance tax on vehicles to discourage profiteering

ISLAMABAD: The federal government has imposed advance tax ranging from Rs50,000 to Rs200,000 on vehicles to discourage ‘on money’ culture in Pakistan.

In this regard, the president has promulgated the Tax Laws (Amendment) Ordinance 2021, in which the government has not only imposed but also exempted taxes on different categories, including electric vehicles.

Documents state that every motor vehicle registering authority of the Excise and Taxation Department is required to collect advance tax, in addition to the above, from buyers of locally manufactured motor vehicles who subsequently sell it within 90 days of delivery whether prior to or after registration at the below-mentioned rates.

According to details, there is Rs50,000 tax on up to a 1000cc vehicle, and Rs100,000 from 1000cc to 2000cc and Rs200,000 from 2000cc and above engine capacity vehicles; the tax is adjustable and applicable till June 30, 2021, only.

According to sources privy to the matter, the tax has been introduced to discourage the ‘on-money’ culture, which considers a major factor in car price hikes over the past years.

Payment to non-resident 

Under the ordinance, every banking company maintaining a Foreign Currency Value Account (FCVA) or a non-resident Pakistani Rupee Value Account (NRVA) of a non-resident individual holding Pakistan Origin Card (POC) or NIC for Overseas Pakistanis (NICOP) or computerised NIC shall deduct tax at 10 per cent on capital gain arising on the disposal of debt instruments and government securities and certificates, including Shariah-compliant variant invested through FCVA and NRVA, and this shall be a final tax liability for such non-resident persons.

Advance tax on dale or transfer of immovable property  

The government has also imposed an advance tax on sale or transfer of immovable property Under the tax law, ordinance.

“If the seller or transferor is a non-resident individual holding POC, NICOP or NIC, who had acquired the immovable property through an FCVA or an NRVA maintained with authorised banks in Pakistan shall be final tax in lieu of capital gains earned by the seller or transferor from the property so disposed of”.

According to Section 236C, if the buyer or transferee is a non-resident individual holding POC or NICOP or computerised NIC who acquires the immovable property through an FCVA or NRVA maintained with authorised banks in Pakistan, the tax shall be the final tax for such buyer.

Super tax on banking companies

The government has also extended the super tax for an indefinite period in tax laws ordinance. It is pertinent to mention here that Section 4B was inserted vide FA 2015, for the rehabilitation of temporarily displaced persons to be paid by prescribed persons at the rate prescribed under Division IIA of Part I of the First Schedule. From Tax Year 2020 onwards the tax was only applicable to Banking companies @4pc till the Tax year 2021. Now, this tax has been extended for an indefinite period.

Advance tax on imports

The government has also prescribed 1 per cent advance tax for importers of CKD kits of electric vehicles for small cars or SUVs with 50kwh battery or below and LCVs with 150 kwh battery or below.

Advance tax on sale to distributors, dealers or wholesalers  

The government has given an incentive in the form of reduced rate to support voluntary registration to the manufacturer or commercial importer of electronics, sugar, cement, iron and steel products, fertilizer, motorcycles, pesticides, cigarettes, glass, textile, beverages, paint or foam.

The rate of advance tax on sale to distributors, dealers or wholesalers of fertiliser is reduced to 0.25pc form 0.7pc, if they already are or get themselves registered under the Sales Tax Act, 1990 within 60 days of the promulgation of this ordinance.

Profit on debt 

The government has restricted exemptions to non-resident individuals, the non-resident association of person and non-resident companies under Clause 78.

Currently, FBR was giving exemptions from tax to citizens of Pakistan and foreign nationals residing abroad, the foreign association of persons, companies registered and operating abroad and foreign nationals residing in Pakistan on any profit on debt derived from foreign currency accounts held with authorised banks in Pakistan, or certificate of investment issued by investment banks in accordance with Foreign Currency Accounts Scheme introduced by the State Bank of Pakistan.

Further, exemptions to a non-resident individual holding a POC or NICOP or CNIC under clause 79 have been restricted.

Deduction on payments

Under the tax ordinance, wholesaler and retailers of fast-moving consumer goods, fertiliser, sugar, cement and edible oil, have also been added to the recipient of the payment category list.

Sales tax exemptions 

Exemptions from sales tax have been provided to local manufacturers of ‘Small cars and SUVs with 50 kwh battery or below; and Light Commercial Vehicles with 150 kwh battery or below’ till 30th June 2026.

Similarly,  Electric vehicles, CKD kits for small cars or SUVs, with 50 kwh battery or below and light commercial vehicles (LCVs) with 150 kwh battery or below as well as electric vehicles, 2-3 wheelers and heavy commercial vehicles, in CBU condition have also been exempted from sales tax till the 30th June 2026, while imported and locally manufactured 4 wheeler electric vehicles have been excluded from levy of federal excise duty.