KARACHI: Overseas Investors Chamber of Commerce and Industry (OICCI) has recommended reduction in federal excise duty (FED) on locally manufactured cars.
The OICCI in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR), recommended that levy of FED on locally manufactured vehicles should be reduced by amending Serial No. 55B and 55D of Table I of First Schedule of the Federal Excise Act, 2005, to restore sales revenue of vehicles of auto sector while also increasing government revenue.
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The reduced FED rates proposed are as follows:
| Vehicle Category | FED |
| 0 to 1000cc | 0% |
| 1001cc to 1350cc | 2.5% |
| 1351cc to 2000cc | 5% |
| 2001cc and above | 7.5% |
| Double cabin 4X4 pickup | 7.5% |
It further recommended reduction in minimum tax under section 113 of Income Tax Ordinance, 2001 for authorized dealers of vehicle manufacturers and exemption of withholding tax under section 231B of the Ordinance on sale to dealers.
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The rationale is to promote wholesale-retail mechanism, 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 and will promote documentation, thereby increasing tax base.”
The OICCI recommended to reduce minimum tax u/s 113 of the Income Tax Ordinance, 2001, from 1.25 per cent to 0.25 per cent on turnover of authorized dealers of vehicle manufacturers, as being allowed to motorcycle dealers, distributors of FMCG, Pharmaceutical, Fertilizers, etc.;
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Further, withholding income tax u/s 231B should be exempted on sale of vehicles by manufacturers to their authorized dealers to effectively implement wholesale-retail mechanism.
The overseas chamber also highlighted rate of withholding income tax under section 231B of Income Tax Ordinance, 2001.
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Amendment shall be made in the categories of vehicles mentioned in Division VII of Part IV of First Schedule as follows:
| Engine Capacity (Existing) | Engine Capacity (Proposed) | Tax |
| 1001cc to 1300cc | 1001cc to 1350cc | 25,000 |
| 1301 cc to 1600cc | 1351 cc to 1600cc | 50,000 |
On passenger car with capacity of 1300cc category, different tax rates are applicable based on slight increase in engine capacity (e.g Toyota Corolla (1299cc) was replaced with Toyota Yaris (1329cc). While both vehicles are categorized under broad 1300 cc by market, Rs. 25,000 was collected on Toyota Corolla 1299cc, while Rs. 50,000 is collected on Toyota Yaris 1329cc. Slight increase in cc category is resulting in twice income tax being collected from customer and increasing the cost for customer.
