KARACHI: The government has proposed relief in duty and taxes on import and local supply of motor cars up to 850CC in order to enable lower income group to purchase the motor vehicles.
According to a commentary on budget 2021/2022 issued by KPMG Taseer Hadi & Co. Chartered Accountants, in recent years, the prices of automobiles in Pakistan have seen a sharp rise due to multiple factors, making them unaffordable for common man.
The Finance Bill 2021 proposes to rationalize the tariff structure of the automobile sector in order to address this matter in the following manner:
For motor vehicles up to 850cc, the Bill proposes to abolish import taxes including minimum value addition tax. In the case of locally manufactured vehicles with engine capacity upto 850cc, the Bill proposes to reduce sales tax from 17 percent to 12.5 percent and abolish federal excise duty.
In case of local supply of locally manufactured Electric Vehicles (EV) i.e., small cars or SUVs with battery capacity up to 50 kwh and Light Commercial Vehicles(LCV)with battery capacity up to 150 kwh, the Finance Bill 2021 proposes to levy sales tax at reduced rate of 1 percent whereas import of the same is excluded from minimum value addition tax with 25 percent reduction in custom duty till 30.06.2026.
However, import of CKD kits for these EVs is proposed to be taxed at reduced customs duty rate of 1 percent with exemption / exclusion from chargeability of sales taxand minimum value addition tax.
In addition, the Bill proposes to reduce sales tax on Hybrid Electric cars with capacity up to 1800 cc to 8.5 percent.
The Bill further proposes to reduce levy of minimum tax on turnover from 1.5 percent to 0.25 percent in case of persons engaged in sale and purchase of used vehicles while also abolishing withholding of income tax on purchase of used vehicles from general public.
However, the collection of advance tax is proposed to be made from the original purchaser who sells it without registration, at the rates ranging from Rs. 50,000 to Rs. 200,000.