Karachi, December 23, 2023 – The Federal Board of Revenue (FBR) has introduced a straightforward procedure for the collection of sales tax on the sale of used vehicles for the tax year 2024.
The FBR has released updated guidelines, known as the Sales Tax Rules, 2006, specifically outlining the process under Rule 164A.
The new rule, Rule 164A, pertains to the supply of used vehicles and is designed to streamline the taxation process for businesses engaged in buying and selling used vehicles from the general public, where sales tax has already been paid during the import or manufacturing phase.
According to Rule 164A:
1. Calculation of Value: If a registered person is involved in the business of purchasing and selling used vehicles, and sales tax was previously paid at the time of import or manufacturing, the value of the supply must be determined according to the formula outlined in sub-rule (2).
2. Formula for Value Calculation: The value of supply is calculated using the formula A – B, where:
• A represents the consideration in money received by the registered person from the buyer of the used vehicle, including all charges and fees but excluding the amount of sales tax charged.
• B represents the consideration in money paid by the registered person to the seller of the used vehicle, including all charges and fees.
It is important to note:
• The entire transaction amount must be processed through a banking channel, as required by section 73 of the Act.
• If a vehicle is sold at a price lower than its purchase price, the value determined under this sub-rule is deemed to be zero.
3. Input Tax Credit Limitation: No input tax credit will be allowed to the registered person for goods or services acquired specifically for the purpose of selling used vehicles.
This streamlined procedure aims to simplify the taxation process for businesses dealing in used vehicles while ensuring transparency in financial transactions. The emphasis on banking channels and the provision for cases where vehicles are sold at a reduced price contribute to a fair and balanced tax system.
The unveiling of this procedure is a positive step towards promoting clarity and ease of compliance within the taxation framework, providing businesses with a clear understanding of their obligations regarding the collection of sales tax on used vehicles during the upcoming tax year.
