Earlier this month, the government of Pakistan presented the Annual Budget 2022-23. In the new budget, the government proposed to impose an extra tax on cars with price over Rs. 5 million (50 lacs). Later, the Finance Bill called it the Capital Value Tax (CVT) and mentioned a rate of 2% for the said category of vehicles. Now, the Federal Board of Revenue (FBR) has reduced the tax percentage from 2% to 1%, under an amendment to the Finance Bill 2022.
Capital Value Tax on Cars
The capital value tax (CVT) is charged on assets based on their value. According to the Finance Bill 2022, 1% capital value tax will be charged on all vehicles in Pakistan worth more than Rs. 5 million.
FBR has also disclosed the procedure of evaluation of vehicles. Vehicles manufactured within Pakistan will be valued at the value determined by the manufacturer.
For imported vehicles, the value is determined by Customs authorities and includes the custom charges.
In case a vehicle is auctioned, the auction price will be considered the value of the car. In any other case, the total consideration paid to acquire, alter or improve the vehicle will be regarded as the final value of the vehicle. Depreciation of vehicles is also accounted for by the Finance Bill 2022. It requires that the value of the motor vehicle mentioned shall be reduced by 10 percent for each year from the end of the financial year in which the motor vehicle is obtained.
For imported vehicles, the tax shall be collected by the Customs authorities at the time of import. In the case of locally manufactured vehicles, the local manufacturer or assembler shall collect tax from the buyer of the motor vehicle on sale value at the rate specified in the First Schedule.
Effected Cars & Companies
Under the new tax, the prices will go up and companies including Toyota Indus Motors, Honda Atlas, Kia Lucky Motors and Hyundai Nishat will be affected. Meanwhile, prices of cars like Honda Civic, Proton X70, Peugeot 2008, Kia Sportage, Hyundai Tucson will probably go up.
In hindsight, this doesn’t seem to be a good policy as the prices of cars have already been going up for couple of years. This new tax will lead to another jump, increasing the burden on consumers.
The Finance Bill 2022 has provided relaxation to the citizens in this time of inflation and hiked car prices. This new amendment can be seen as a sort of relief for consumers looking to buy cars in the year 2022. The change is minimal as it is only of one percent and might hardly make a difference in this inflation.
What do you think about the new Capital Value Tax on cars? Do you think it will further increase the prices? Share your thoughts in the comments section.
