Starting July 1, 2024, the Federal Board of Revenue (FBR) will shift its method of collecting advance income tax on motor vehicles.
Instead of basing the tax on the engine capacity, the tax will now be calculated as a percentage of the vehicle’s value. This significant change was outlined in the recently explained Finance Bill 2024.
The FBR has justified this change by highlighting the substantial increase in the prices of motor vehicles over recent years. The traditional method of taxing vehicles based on engine capacity no longer accurately captures the potential revenue from the tax. By switching to a value-based system, the FBR aims to better align tax collection with the true market value of motor vehicles.
“The prices of motor vehicles have substantially increased, therefore in order to capture the true potential of tax, it is proposed that the basis of tax collection may be changed from engine capacity to a percentage of value in cases of all motor vehicles,” FBR stated.
In addition to this fundamental shift, the FBR also proposed an increase in the tax percentage for vehicles with an engine capacity of more than 2000cc. This move is expected to further augment revenue from high-end, luxury vehicles, ensuring that the tax system remains equitable and reflects the higher economic capacity of owners of such vehicles.
This change is part of a broader strategy by the FBR to modernize and make tax collection more efficient and fair. By aligning the tax basis with current market realities, the FBR aims to enhance revenue collection and reduce potential discrepancies that could arise from the previous method based on engine capacity alone.
Automobile industry stakeholders and vehicle owners are advised to prepare for these changes and understand how the new tax calculations will affect their financial planning and vehicle purchases. The FBR is expected to release detailed guidelines and schedules to assist in the transition to this new tax system.
As the implementation date approaches, more updates and clarifications from the FBR are anticipated, ensuring a smooth transition to the new tax structure and minimizing any potential confusion among taxpayers.
