The Federal Board of Revenue (FBR) in Pakistan has released the updated rates of withholding tax on the purchase of motor cars for the fiscal year 2021-2022.
Car manufacturers are mandated to deduct withholding tax from purchasers under Section 231B(3) of the Income Tax Ordinance, 2001. The new rates, effective for the specified period, are outlined to streamline the taxation process and ensure compliance.
Withholding Tax Rates for 2021-2022:
1. Up to 850cc:
• For Active Taxpayers List (ATL): Rs. 7,500
• For individuals not on ATL: Rs. 15,000
2. 851cc to 1000cc:
• For ATL: Rs. 15,000
• For individuals not on ATL: Rs. 30,000
3. 1001cc to 1300cc:
• For ATL: Rs. 25,000
• For individuals not on ATL: Rs. 50,000
4. 1301cc to 1600cc:
• For ATL: Rs. 50,000
• For individuals not on ATL: Rs. 100,000
5. 1601cc to 1800cc:
• For ATL: Rs. 75,000
• For individuals not on ATL: Rs. 150,000
6. 1801cc to 2000cc:
• For ATL: Rs. 100,000
• For individuals not on ATL: Rs. 200,000
7. 2001cc to 2500cc:
• For ATL: Rs. 150,000
• For individuals not on ATL: Rs. 300,000
8. 2501cc to 3000cc:
• For ATL: Rs. 200,000
• For individuals not on ATL: Rs. 400,000
9. Above 3000cc:
• For ATL: Rs. 250,000
• For individuals not on ATL: Rs. 500,000
It’s important to note that the tax collected or deducted under this withholding tax provision is adjustable against the total payable liability of the taxpayer. This mechanism aims to facilitate taxpayers and ensure a smooth reconciliation process.
Background and Purpose:
The introduction of these withholding tax rates serves multiple purposes. Firstly, it streamlines the taxation process for motor car purchases, providing clarity and consistency in the applicable rates. Secondly, it aligns with the broader fiscal policies and revenue collection strategies of the government.
By categorizing the withholding tax rates based on the engine capacity of the motor vehicles, the FBR aims to ensure that the taxation burden is proportionate to the value and specifications of the cars. The distinction between taxpayers on the Active Taxpayers List (ATL) and those not on ATL reflects an approach to encourage active tax compliance.
The adjustable nature of the tax against the total payable liability offers flexibility and fairness in the tax system. Taxpayers can offset the tax deducted on motor car purchases against their overall tax obligations, contributing to a more equitable taxation structure.
This update from the FBR is part of ongoing efforts to refine and optimize the country’s tax system, fostering transparency and compliance while supporting revenue generation for national development initiatives. It remains essential for individuals and businesses involved in motor car transactions to be aware of and adhere to these revised withholding tax rates to ensure compliance with the Income Tax Ordinance, 2001.