Honda Atlas Cars Pakistan reports tax contingencies exceeding Rs17 billion amid ongoing legal battles with tax authorities
KARACHI: Honda Atlas Cars (Pakistan) Limited has disclosed tax contingencies exceeding Rs17 billion in disputes with the Federal Board of Revenue (FBR), according to its Annual Report 2026.
The automobile manufacturer said it is contesting several tax-related matters involving customs duties, sales tax claims and export-linked concessionary duties, while maintaining that it has strong legal grounds in each case.
Rs5.4 billion customs duty dispute
The company revealed that the Collector of Customs (Appeals) upheld demands amounting to Rs5.40 billion raised by customs authorities regarding imports made between April 2011 and December 2016, April 2017 to December 2017, and April 2018 to March 2022.
The demands relate to customs duty, sales tax and income tax liabilities based on the contention that licence fees and royalty payments made to Honda Motor Co., Ltd., Japan should be included in the import value of Completely Knocked Down (CKD) kits and vehicle parts assembled by the company.
Honda Atlas Cars has challenged the decision before the Customs Appellate Tribunal, where the matter remains pending.
The company argued that the royalty and licence fee payments are linked to its manufacturing facilities rather than imported goods and therefore should not form part of the import value.
It further stated that no provision has been recognised in the financial statements because management, based on legal advice, believes its position is supported by previous decisions of the Customs Appellate Tribunal in the company’s favour.
Rs63.6 million sales tax case pending before Lahore High Court
Honda Atlas Cars also disclosed a sales tax dispute involving Rs63.60 million in input tax credits claimed between July 2012 and June 2014.
The Deputy Commissioner Inland Revenue had disallowed the input tax credit on the grounds that it related to exempt supplies and was therefore not admissible.
Subsequent appeals before the Commissioner Inland Revenue (Appeals) and the Appellate Tribunal Inland Revenue were decided against the company.
However, Honda filed an appeal before the Lahore High Court in February 2019. The court granted a stay order against the tribunal’s decision, while the main appeal remains pending adjudication.
The company stated that based on legal counsel’s opinion, management believes the case is likely to be decided in its favour and, accordingly, no provision has been made in the financial statements.
Rs12.47 billion exposure linked to export targets
The largest disclosed contingency relates to potential customs duty exposure of Rs12.47 billion arising from amendments introduced through SRO 2069(I)/2022.
The notification imposed mandatory annual export targets on Original Equipment Manufacturers (OEMs) seeking concessionary customs duty benefits under SRO 656 of 2006.
Under the revised framework, manufacturers are required to export a specified percentage of their imports to continue availing concessionary duty rates.
Honda Atlas Cars has challenged these amendments through a writ petition before the Lahore High Court, arguing that SRO 656 was originally designed to encourage local vehicle assembly and manufacturing rather than impose export obligations.
The Lahore High Court granted interim relief, directing the Engineering Development Board to allow the company to continue importing goods at concessionary rates. The petition and interim relief remained effective as of March 31, 2026.
The company noted that automobile manufacturers are also engaging with the government to resolve the matter without disrupting industry operations.
Despite assessing a potential customs duty exposure of Rs12.47 billion, Honda Atlas Cars said no provision has been recognised in its accounts, as management believes the company has a reasonable legal case that will ultimately be decided in its favour.
The disclosures highlight significant tax-related litigation facing the automobile sector, particularly regarding customs valuation methodologies, sales tax treatment and evolving regulatory requirements tied to industry incentives.
