KARACHI, September 14, 2024 – The Federal Board of Revenue (FBR) has announced updated withholding tax rates for motor vehicle purchases made on ‘own money’ during the tax year 2024-25. The new rates were included in the FBR’s revised withholding tax card, which outlines the specific charges under Section 231B(2A) of the Income Tax Ordinance, 2001.
What is ‘Own Money’?
‘Own money’ refers to the additional premium buyers often pay to acquire a vehicle immediately instead of waiting for delivery from the manufacturer or dealer. The government has imposed withholding taxes on such transactions to curb this practice and ensure tax compliance.
New Withholding Tax Rates for Motor Vehicles
The FBR has categorized the new withholding tax rates based on the engine capacity (cc) of the motor vehicles and whether the buyer is listed on the Active Taxpayers List (ATL) or not. The tax rates have been significantly increased for individuals not on the ATL.
• For Motor Vehicles with Engine Capacity up to 1000cc:
o ATL: Buyers listed on the ATL will be charged Rs 100,000 as withholding tax.
o Non-ATL: For those not on the ATL, the withholding tax rate will be 200% higher, amounting to Rs 300,000.
• For Motor Vehicles with Engine Capacity Between 1,001cc and 2,000cc:
o ATL: Buyers on the ATL will pay Rs 200,000.
o Non-ATL: Those not listed on the ATL will be subject to a Rs 600,000 withholding tax.
• For Motor Vehicles with Engine Capacity of 2,001cc and Above:
o ATL: Individuals listed on the ATL will pay Rs 400,000 in withholding tax.
o Non-ATL: Non-ATL buyers will face a much steeper tax, set at Rs 1.2 million.
These updated rates reflect the government’s continued efforts to encourage individuals and businesses to be on the ATL by imposing significantly higher taxes on non-compliant taxpayers.
Role of Motor Vehicle Registration Authorities
According to the FBR, the Excise and Taxation Department’s motor vehicle registration authorities will be responsible for collecting this withholding tax at the time of registration. The tax will apply if the locally manufactured vehicle has been sold by the original purchaser to another buyer before its official registration.
The FBR’s move to update these withholding tax rates is part of a broader initiative to combat tax evasion, promote transparency in vehicle purchases, and increase revenue collection.
Encouraging Compliance
The significant difference between the tax rates for ATL and non-ATL individuals is aimed at incentivizing taxpayers to regularly file their returns and stay on the active taxpayers’ list. The government hopes this will lead to improved tax compliance, especially in sectors like automobile sales, where informal practices often result in revenue leakage.
