The Finance Act 2023 has brought about significant changes in the tax landscape, especially concerning completely knocked down (CKD) cars and registration of electric vehicles (E-vehicles). However, the act has left some ambiguity regarding the tax rates for E-vehicle registration.
Tax Rates for EVs & CKDs
According to tax experts:
- 3% Advance Tax would be collected at the time of registration of EVs with value of Rs. 5 million or more where engine capacity is not applicable.
- Although the act does not explicitly mention EVs, experts have extrapolated this conclusion based on the provided criteria.
Meanwhile, for locally assembled cars:
- A 1% increase has been applied in Further Tax on all completely knocked down (CKDs).
- Therefore the new tax rate is 4% from previous 3%. This rate is irrespective of any conditions like engine capacity or income etc.
Tax Calculation for Motor Vehicles
The Finance Act 2023 outlines the value calculation for motor vehicles based on various factors such as engine capacity and the mode of acquisition. For imported vehicles, the value is assessed by customs authorities and includes customs duty, federal excise duty, and sales tax payable at the import stage.
Similarly, for vehicles manufactured or assembled locally, the invoice value inclusive of all duties and taxes is considered. In the case of auctioned vehicles, the auction value, inclusive of all duties and taxation amounts, is taken into account.
Changes in Income Tax Slabs
Earlier, the Finance Act 2023 introduces revised income tax slabs that impact the fixed tax rate for vehicles with specific engine capacities. Let’s explore the updated slabs:
1. Engine Capacity 2001cc to 2500cc: The fixed rate is set at 6 percent of the vehicle’s value.
2. Engine Capacity 2501cc to 3000cc: Vehicles falling within this range will be subject to an 8 percent fixed rate.
3. Engine Capacity Above 3000cc: For vehicles with engine capacities exceeding 3000cc, the fixed rate has been set at 10 percent of the vehicle’s value.
While the Finance Act 2023 brings certain clarity to the rates for motor vehicles, the specific tax rates for electric vehicle registration remain a topic of discussion among tax experts. With a projected rate of 3%t for EVs valued at Rs. 5 million rupees or more, the government aims to encourage the adoption of environmentally friendly transportation options.
On top of that, all customers will be paying a 4% tax instead of 3% on CKD cars, meaning the prices of locally assembled cars will go up in coming days.
