Why You Must Know Advance Tax on Motor Vehicles
Planning to buy a car, jeep, SUV, or other motor vehicle in 2026?
• The Federal Board of Revenue (FBR) collects advance tax at the time of purchase, registration, leasing, or transfer.
• Section 231B of the Income Tax Ordinance, 2001 (updated for 2026) governs this tax.
• Non-ATL taxpayers face double the tax rates, making it crucial to check your ATL status before purchase.
⚠ This tax applies to most motor vehicles except public transport, goods vehicles, motorcycles under 200cc, and rickshaws.
Who Collects the Advance Tax?
Advance tax on motor vehicles can be collected by:
1. Motor vehicle registration authorities (Excise & Taxation Department)
2. Leasing companies, banks, non-banking financial institutions, modarabas, and development finance institutions (for vehicles leased to non-ATL persons)
3. Vehicle manufacturers at the time of sale
💡 The tax is adjustable against your annual income tax liability, but failure to pay may create additional liability.
Advance Tax on Purchase and Registration
Section 231B(1) & 231B(3) specify:
| Engine Capacity | Tax Rate (Purchase/Registration) | Notes |
| Up to 850cc | 0.5% of vehicle value | Imported or locally manufactured |
| 851cc–1000cc | 1% | |
| 1001cc–1300cc | 1.5% | |
| 1301cc–1600cc | 2% | |
| 1601cc–1800cc | 3% | |
| 1801cc–2000cc | 5% | |
| 2001cc–2500cc | 7% | |
| 2501cc–3000cc | 9% | |
| Above 3000cc | 12% | |
| Value ≥ Rs. 5 million (any engine) | 3% | Applies if engine not applicable |
Value Definition:
• Imported: Import value + customs duty + federal excise duty + sales tax
• Locally manufactured: Invoice value inclusive of all duties/taxes
• Auctioned vehicles: Auction value inclusive of duties/taxes
🔔 Non-ATL taxpayers pay 200% of these rates.
Advance Tax on Transfer of Ownership
Section 231B(2) covers transfer:
| Engine Capacity | Tax on Transfer | Notes |
| Up to 850cc | – | Exempt |
| 851cc–1000cc | Rs. 5,000 | Reduced 10% per year after first registration |
| 1001cc–1300cc | Rs. 7,500 | |
| 1301cc–1600cc | Rs. 12,500 | |
| 1601cc–1800cc | Rs. 18,750 | |
| 1801cc–2000cc | Rs. 25,000 | |
| 2001cc–2500cc | Rs. 37,500 | |
| 2501cc–3000cc | Rs. 50,000 | |
| Above 3000cc | Rs. 62,500 | |
| Value ≥ Rs. 5 million | Rs. 20,000 | Engine not applicable |
✅ Tax reduces 10% each year from the date of first registration.
Special Advance Tax for Locally Manufactured Vehicles
Section 231B(2A): Tax on vehicles sold by original purchaser before registration:
| Engine Capacity | Tax (Rs.) |
| Up to 1000cc | 100,000 |
| 1001cc–2000cc | 200,000 |
| 2001cc & above | 400,000 |
⚠ Non-ATL persons: Tax is tripled (200% increase).
Advance Tax on Leasing Vehicles
Section 231B(1A):
• Leasing companies or banks collect 4% of vehicle value for non-ATL lessees
• Applies to Ijara or other leasing modes
• Ensures FBR collects tax even if purchase is structured via financing
Exemptions
Advance tax does not apply to:
• Federal, provincial, or local governments
• Foreign diplomats or missions
Definition of Date of First Registration
• Armed Forces: Date of broad arrow number issuance
• Foreign diplomat/missions: Date of Ministry of Foreign Affairs registration
• Government vehicles: Last day of year of manufacture
• All others: Date of registration by Excise & Taxation Department
This date is used to calculate tax reduction and five-year applicability limit.
Summary: Motor Vehicle Advance Tax for 2026
| Vehicle Type | Purchase/Registration | Transfer | Non-ATL Rate | Notes |
| Imported/Local | 0.5–12% | Rs. 5,000–62,500 | 200% of normal | Tax adjustable |
| Leased to non-ATL | 4% | N/A | 4% | Applies to Ijara & financing |
| Locally manufactured, sold pre-registration | Rs. 100k–400k | N/A | 200% | Applies to all engines |
⚠ The tax applies only within 5 years from the date of first registration.
Checklist Before Buying a Vehicle
• Check if your name is on ATL
• Determine vehicle engine capacity & value
• Confirm purchase type (cash, financed, leased)
• Plan registration & transfer timing to optimize tax
• Keep all invoices and registration documents for FBR compliance
• Consider tax reduction schedule if transferring a vehicle
Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. For exact rates, exemptions, or transaction-specific guidance, consult the Federal Board of Revenue (FBR) or a certified tax advisor.