Mini-budget: Advance tax on motor vehicles doubles

Mini-budget: Advance tax on motor vehicles doubles

In a bid to curb the practice of on-money transactions on motor vehicles and boost advance tax revenues, the government has introduced significant changes in the Finance (Supplementary) Bill, 2021, commonly referred to as the mini-budget.

One of the key amendments involves the doubling of advance income tax rates on motor vehicles sold prior to registration. The proposal, presented before the parliament on Thursday, is expected to generate an additional Rs500 million in tax revenue for the Federal Board of Revenue (FBR).

The move to increase advance tax rates on pre-registered vehicles is aimed at discouraging on-money transactions or premiums associated with the sale of motor vehicles. The practice of selling vehicles before registration has been a common loophole exploited by individuals to avoid taxes and engage in speculative trading.

Under the proposed changes, the advance tax rates for motor vehicles will see a significant hike across different engine capacities. The existing rates and the proposed rates are as follows:

1. Up to 1000cc:

• Existing Rate: Rs. 50,000

• Proposed Rate: Rs. 100,000

2. 1001cc to 2000cc:

• Existing Rate: Rs. 100,000

• Proposed Rate: Rs. 200,000

3. 2001cc and above:

• Existing Rate: Rs. 200,000

• Proposed Rate: Rs. 400,000

The increase in tax rates is expected to act as a deterrent to the practice of selling vehicles before formal registration, as buyers and sellers alike will now face higher financial implications. This move aligns with the government’s broader strategy to promote transparency, reduce tax evasion, and ensure a fair and equitable taxation system.

According to FBR sources, the decision to enhance advance tax on vehicle registration is a proactive measure to address the challenges associated with on-money transactions in the automotive sector. The surge in revenue, estimated at Rs500 million, will contribute to the government’s fiscal objectives and provide much-needed resources for public welfare initiatives and development projects.

While the increase in advance tax rates may face some resistance from certain quarters, proponents argue that it is a necessary step to bring about positive changes in the motor vehicle market. By discouraging speculative trading and promoting legal and transparent transactions, the government aims to create a more accountable and compliant business environment.

The Finance (Supplementary) Bill, 2021, will undergo parliamentary scrutiny and debate before potential implementation. The government anticipates that these changes will not only enhance tax revenues but also foster a culture of tax compliance and responsibility among stakeholders in the automotive industry.