Karachi, July 15, 2024 – The Federal Board of Revenue (FBR) has introduced a new withholding tax regime applicable to the purchase or registration of new motor vehicles, marking a significant shift from the previous tax structure.
Effective from July 1, 2024, the new regime, outlined in the Finance Act of 2024, aims to streamline tax collection by aligning levies more closely with the value of vehicles rather than their engine capacity.
According to FBR officials, the overhaul of the withholding tax system is designed to modernize revenue collection methods and enhance fairness across different vehicle categories. Under the updated framework, taxes will be assessed as a percentage of the vehicle’s value, as opposed to the previously applied fixed rates based solely on engine capacity.
The revised rates of withholding tax applicable to new motor vehicles are detailed as follows:
1. Up to 850 cc: 0.5% of the vehicle’s value
2. 851 cc to 1000 cc: 1% of the vehicle’s value
3. 1001 cc to 1300 cc: 1.5% of the vehicle’s value
4. 1301 cc to 1600 cc: 2% of the vehicle’s value
5. 1601 cc to 1800 cc: 3% of the vehicle’s value
6. 1801 cc to 2000 cc: 5% of the vehicle’s value
7. 2001 cc to 2500 cc: 7% of the vehicle’s value
8. 2501 cc to 3000 cc: 9% of the vehicle’s value
9. Above 3000 cc: 12% of the vehicle’s value
This progressive tax structure is expected to generate a more equitable distribution of tax burdens among buyers of motor vehicles, reflecting the varying price points and capabilities of different models in the market.
Under Section 231B of the Income Tax Ordinance, 2001, every registering authority of the Excise and Taxation Department is mandated to collect advance tax at the time of vehicle registration. Notably, FBR officials clarified that no advance tax collection will occur beyond five years from the date of initial registration, as stipulated under specific clauses of the ordinance.
The implementation of this new regime for motor vehicles underscores the government’s commitment to modernize fiscal policies, ensuring they remain responsive to economic realities and fair to taxpayers. The FBR anticipates that the revised withholding tax rates will contribute positively to revenue collection efforts while promoting transparency and accountability in the motor vehicle sector.
Stakeholders, including automobile manufacturers, dealerships, and prospective buyers, are advised to familiarize themselves with the updated tax rates to facilitate compliance and avoid any potential penalties associated with non-compliance. The FBR has also assured stakeholders of continued support and guidance through its various communication channels to address any queries or concerns arising from the new tax regime.
The introduction of the revised withholding tax regime marks a pivotal step towards a more progressive and sustainable fiscal framework for motor vehicles, aimed at bolstering revenue streams and fostering a level playing field in the automotive market.