Islamabad, May 25, 2024 – In a significant move poised to impact the automotive market, the Federal Board of Revenue (FBR) has proposed the introduction of a capital gains tax (CGT) on the sale of used cars.
This proposal is set to be included in the upcoming budget for the fiscal year 2024-25.
Insiders revealed to PkRevenue.com that this proposal stems from a noticeable trend: due to exchange rate fluctuations, many used personal motor cars in Pakistan are now being sold at prices significantly higher than their original purchase price.
This phenomenon has resulted in substantial capital gains for sellers. However, under the current legislation, these gains remain untaxed as moveable assets are not classified as capital assets, thereby exempting them from CGT.
To address this loophole, the FBR has recommended an amendment to Section 37(5) of the Income Tax Ordinance, 2001. This amendment seeks to redefine ‘capital assets’ to include used personal motor cars, thereby bringing the gains from their sale under the tax net.
The proposed tax has sparked discussions among various stakeholders. Proponents argue that this move is a necessary step towards broadening the tax base and increasing government revenues. They believe that taxing the capital gains on used cars is a fair measure, particularly given the substantial profits some sellers are making due to the current economic conditions.
Conversely, critics are concerned about the potential negative impact on the used car market. They argue that imposing CGT could deter individuals from selling their vehicles, thereby reducing market liquidity and possibly inflating prices further. Some also fear that this could disproportionately affect middle and lower-income groups who rely on the used car market for affordable transportation options.
The FBR’s proposal is part of a broader strategy to enhance revenue collection and reduce the fiscal deficit. As the government prepares to finalize the budget, all eyes will be on the parliamentary discussions and the response from the public and industry experts.
This development underscores the FBR’s ongoing efforts to adapt tax policies to the evolving economic landscape, aiming for a more equitable and efficient tax system. Whether the proposal will pass legislative scrutiny remains to be seen, but its introduction marks a pivotal moment in Pakistan’s tax policy discourse.
