A lot of confusion emerged in the local automotive industry when the government passed the Finance Bill and introduced a new taxation system for collecting taxes on the car. The most surprising factor of this new taxation system was the imposition of tax on cars per annum keeping in view the seating capacity of the vehicle. Moreover, in the bill, a mind-boggling increase in the income tax and withholding tax on the registration of cars were introduced.
However, now, after much fuss, the FBR has responded and asserted that the Finance Bill had typing error which has been fixed in finance act. There is no tax being levied on private cars per seat. Moreover, the authority also said that there is no change in the car’s registration and token tax fee.
In its finance bill 2019-20, the Government has announced a mind-boggling increase in the income tax and withholding tax on the registration and transfer of vehicles, which is equivalent to dropping a tax bomb on the consumers.
The government in its finance bill has changed the taxation system from one-time to the annual levy, which is certainly very bad news for the consumers of the automobile sector. The latest imposition of taxes on the registration, transfer and annual token tax fee is impractical in nature and the purchase of new and old cars, both would become a difficult task for the consumers. The government in its new policy has divided the cars into 8 slabs in accordance with the engine displacement. The most surprising factor of this new taxation system is the imposition of tax on each seat of the vehicle. The withholding tax will be fixed on an annual basis depending upon the number of seats of a vehicle. However, there will be a separate fee for both filers and non-filers. The non-filers are being targeted to a great extent in this policy with a double fee as compared to what non-filers will have to pay. The complete list of withholding tax on the registration and transfer of vehicles is given below:
As mentioned above, on vehicles from 851 cc to 1000cc, the consumers (non-filers) will have to pay Rs.10,000 per seat. There will be a withholding tax of Rs.7500 and Rs.15000 on vehicles from 1001 cc to 1300cc respectively. The vehicles with engine displacement from 1301 cc to 1600 cc will be bound to pay Rs.12,500 and Rs.25,000 by filers and non-filers respectively. Similarly, the withholding tax goes all the way up to Rs.125,000 (non-filers) for vehicles over 3001 cc engine displacement. With the above amount of tax on each seat, the categorization with respect to a 4-seater vehicle is calculated as below.
The above table shows that the new annual taxation on the registration and transfer of vehicles is highly unjustified. In a country like Pakistan, where a large proportion of population comprises of the middle class, it’s certainly a discouraging step to impose such a high amount of withholding tax, especially on cars under 1300cc. It is pertinent to mention here that the annual withholding tax will be applicable not only on the registration of a vehicle but for as many times it’s transferred to a new owner.
On the other hand, the government has also announced to collect income tax along with the annual token tax of the cars. For cars from 1001 cc to 1100 cc engine displacement, the users will have to pay Rs.1500 (filers) and Rs.3000 (non-filers). Similarly, all the cars over 2000 cc engine capacity, there will be an income tax of Rs.10,000 (filers) and Rs.20,000 (non-filers) to be paid along with the annual token tax.
The new policy of the government will clearly get rejected by the general public due to the non-practicality. However, the officials of the Excise and Taxation department are also unsure about the facts and figures mentioned in the finance bill as they believe there might be some typographical error. But, the officials ensured that if the tax schedule is correctly mentioned in the bill, it will be implemented with immediate effect from 1st July 2019. The department has already updated their software to make all the necessary changes in the previous rates.
In my humble opinion, it is unjust to put an additional burden of withholding tax on the consumers with each registration and transfer of a particular vehicle. What are your thoughts regarding the finance bill? Let us know in the comments section below. This is a developing story so stay connected for further updates.