Karachi, February 11, 2025 – The Federal Board of Revenue (FBR) has revised the valuation method for used vehicles concerning the calculation of sales tax.
This update aims to streamline taxation and ensure compliance with existing regulations governing the resale of previously owned automobiles.
According to the FBR, the valuation mechanism for used vehicles is defined under Rule 164A of the Sales Tax Rules, 2006. This rule outlines how the value of used vehicles should be determined when sold by registered dealers.
Key Provisions of Rule 164A
1. Applicability: Any registered entity engaged in purchasing and selling used vehicles from the general public—where sales tax has already been paid at the time of import or manufacturing—must adhere to the prescribed valuation formula.
2. Valuation Formula: The taxable value of the supply is determined using the formula:
A – B
Where:
o A represents the total amount received from the buyer of the used vehicle, including all charges and fees but excluding sales tax.
o B represents the total amount paid by the registered seller to acquire the used vehicle, including all charges and fees.
This method ensures that sales tax is only applied to the margin earned by the dealer on the resale of used vehicles, preventing double taxation.
3. Transaction Compliance: To maintain transparency, all payments for the purchase and sale of used vehicles must be conducted through banking channels, as mandated by Section 73 of the Sales Tax Act. If a vehicle is sold at a price lower than its purchase cost, the taxable value is considered zero, meaning no sales tax will be levied in such cases.
4. Input Tax Restrictions: Registered dealers are not allowed to claim input tax credits for any goods or services used in relation to the sale of used vehicles. This measure prevents misuse of tax credits and aligns with fair taxation practices.
The FBR’s update is expected to provide greater clarity for businesses engaged in the trade of used vehicles while ensuring adherence to tax regulations. Dealers and stakeholders in the automotive resale market are advised to review these changes carefully to ensure compliance with the revised valuation mechanism.