KARACHI: The collection of advance tax from the registration of new motor vehicles recorded a remarkable growth of 62 percent during the first half (July–December) of the current fiscal year (1HFY21), reflecting a rebound in economic activity and renewed demand in the automobile sector.
According to sources at the Regional Tax Office (RTO)-I Karachi, the total collection of advance tax reached Rs730 million in the first half of FY21, compared to Rs450 million during the same period of the previous fiscal year. The RTO-I collects this tax under Section 231B of the Income Tax Ordinance, 2001, specifically at the time of registration of new vehicles.
The registration-linked tax is collected by the Sindh Excise and Taxation Department, which functions as a withholding agent on behalf of the RTO-I Karachi. However, there was a brief suspension in collection operations starting July 1, 2020, after the Federal Board of Revenue (FBR) recovered Rs5 billion from provincial accounts. This led to a temporary halt in the advance tax collection process.
Following negotiations between federal and provincial authorities, the Sindh Excise and Taxation Department resumed the collection of advance tax from October 2020. The resumption significantly boosted revenue generation. Notably, in December 2020 alone, the collection surged by an impressive 222 percent, reaching Rs222 million compared to Rs69 million in the same month of the previous year.
Sources indicated that the spike in registration-linked tax revenue was largely due to the revival of economic activities across the country. As COVID-19 lockdown measures eased during the early months of FY21, consumer confidence returned, and demand for new vehicles rose sharply.
Furthermore, improvements in the documentation of the automobile market and stricter enforcement at the time of registration contributed to the increased revenue. The RTO-I Karachi anticipates sustained growth in this segment, provided economic stability continues and automobile registration processes remain efficiently monitored.