Additional advance tax proposed on all type of motor vehicles to discourage premium

KARACHI: Federal Board of Revenue (FBR) has been urged to impose Rs100,000 as additional advance tax on all type of motor vehicles, which are sold before registration.

Overseas Chamber of Commerce and Industry (OICCI) – the representative body of foreign investors and multinational companies in Pakistan – suggested that an additional advance income tax should be collected at Rs 100,000, for all types of private motor vehicles categories, in case the vehicle is purchased by a person and sold before registration.

In its tax proposals for budget 2019/2020, the chamber said that additional advance tax will discourage sale and purchase of vehicles in market at premium before and after certain period of registration stage.

It further recommended that withholding income tax Under Section 231B of Income Tax Ordinance, 2001 on locally manufactured vehicles should be collected by the motor registration authorities, instead of vehicle manufacturers, as being collected for imported vehicles, to reduce procedural hassles to consumers.

Secondly, In case any vehicle is transferred within 6 months from date of first registration, advance income tax currently being collected at the time of transfer of registration or ownership under sub-section (2) of section 231B, shall be increased to the rates applicable for new vehicles under sub-section (1) of section 231B.

The OICCI said that collection of withholding income tax u/s 231B be streamlined and data will be reconciled at one level, on collection at registration stage by Excise and Taxation department of respective Provinces.

In its tax proposals for auto section the OICCI said that reduction in Minimum tax u/s 113 for Authorized Dealers of vehicle manufacturers and Exemption of Withholding tax u/s 231B on sale to dealers Turnover Tax at 1.25 percent u/s 113 and withholding tax at 4 percent/4.5 percent u/s 153 hampers efforts to pioneer automotive industry towards wholesale-retail mechanism, as applied internationally, in sale of vehicles through its authorized dealers.

Under existing mechanism, dealers are normally earning commission of around 2 percent of sales price, which is subject to withholding income tax at 12 percent falling under final tax regime (i.e. Effective tax rate up to 0.24 percent of the sales price).

Therefore, it is recommended that the reduce minimum tax u/s 113 of the Income Tax Ordinance, 2001, from 1.25 percent to 0.25 percent on turnover of authorized dealers of vehicle manufacturers, as being allowed to Motorcycle dealers, distributors of FMCG, Pharmaceutical, Fertilizers, etc.;

Further withholding income tax u/s 231B be exempted on sale of vehicles by manufacturers to their authorized dealers to effectively implement wholesale-retail mechanism.

Wholesale-retail mechanism may be implemented, as applicable internationally, which will improve volumes on account of stock availability and healthy competition.

Further, contribution to the government will also increase with increased volume.

Income of dealers will be subject to normal taxation that will be subject to return filing and tax audits.

This will also enhance documentation and increase tax base. Value addition by authorized dealers will be subject to taxation and tax to income ratio will increase.

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