Karachi, July 27, 2023 – The Federal Board of Revenue (FBR) has elaborated new withholding tax regime for motor vehicles, aiming to streamline the taxation process and generate revenue for the government.
The FBR’s Circular No. 2 of Income Tax, issued on July 26, 2023, elucidates the recent amendments made to the Income Tax Ordinance, 2001 through the Finance Act, 2023.
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Previously, a fixed amount of withholding tax was levied under section 231B of the Income Tax Ordinance, 2001 at the time of purchasing or registering a motor vehicle with an engine capacity of 2001 cc and above.
However, the Finance Act, 2023 brings about significant changes to this tax structure. Instead of a fixed amount, the FBR will now collect taxes based on a percentage of the vehicle’s value, categorized according to engine capacity:
Motor vehicles with engine capacity between 2001cc to 2500cc will be taxed at a rate of 6% of the vehicle’s value.
Motor vehicles with engine capacity between 2501cc to 3000cc will be taxed at a rate of 8% of the vehicle’s value.
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Motor vehicles with engine capacity above 3000cc will be taxed at a rate of 10% of the vehicle’s value.
It’s essential to note that these tax rates apply to individuals on the Active Taxpayer List (ATL). Non-ATL individuals, however, will face higher rates of withholding tax, with an increase of two hundred percent. The revised rates for non-ATL persons are 18%, 24%, and 30%, respectively, as per the second proviso to rule 1 of the Tenth Schedule to the Income Tax Ordinance, 2001.
To determine the value of the motor vehicle for the purpose of tax collection, the following criteria will be used:
Imported vehicles: The value assessed by Customs authorities at the time of import, increased by customs duty, federal excise duty, and sales tax payable during the import stage.
Locally manufactured or assembled vehicles in Pakistan: The invoice value, including all applicable duties and taxes.
Auctioned vehicles: The auction value, inclusive of all duties and taxes.
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Additionally, in cases where the engine capacity is not applicable and the vehicle’s value exceeds Rupees five million, the applicable tax rate will be 3% of the import value (inclusive of customs duty, sales tax, and federal excise duty for imported vehicles) or the invoice value (for locally manufactured or assembled vehicles).
This new withholding tax regime is set to facilitate tax collection, encourage transparency, and ensure a fair taxation system for motor vehicles in Pakistan. The FBR’s efforts to implement these changes through the Finance Act, 2023, are expected to bolster government revenues and support the country’s economic growth.
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