Lack of uniform taxation policy across the country puts Punjab Excise in a quandary

In a bid to regain its lost tax revenue, the Punjab government has lowered its luxury taxation rate. However, the move has brought its desired results as owners of imported vehicles still prefer registering their vehicles with the Excise and Taxation Department of Islamabad.

The lack of uniformity in the taxation rates across the country has led to a horrible situation particularly for Excise & Taxation Punjab which has lost considerable revenue to Islamabad.

Registering a vehicle in Islamabad is preferred since the luxury tax rate is lower there, which attracts more customers.

It all began back in 2016 when the luxury tax was imposed on the imported vehicles with engine capacities exceeding 1300 cc. The Punjab Excise and Taxation Department implemented the new tax system through an amendment in the Punjab Finance Act 2016, the basic aim of which was the collection of more revenue. Unfortunately, it has backfired.

Luxury tax:

The amount of luxury tax imposed on imported vehicles in accordance with their engine capacity is mentioned below:

As mentioned above, the luxury tax starts from PKR 70,000 and goes all the way up to PKR 300,000 for vehicles over 2500 cc engine capacity which is a hefty amount to collect from the customers. The story doesn’t end here as the imported vehicles in Punjab are also liable to the rest of the taxes such as registration fee, withholding tax, income tax and token tax.

Registration fee slabs:

Once the vehicle is cleared from the customs, it is bound to pay 2% of its total value as registration fees if it lies between the engine capacity of 1300 cc and 1500 cc. Similarly, for vehicles up to 2000 cc, the registration fee goes up to 3% whereas 4% of the vehicle’s total value is applied to those exceeding 2000 cc.

Annual token tax:

Similarly, the token tax starts at PKR 1800 for 1300 cc vehicles, PKR 6000 for vehicles between 1301 cc and 1500 cc and PKR 9000 for vehicles between 1501 cc and 1599 cc.

Arguably, the token tax for imported vehicles is entirely different and much higher as it falls in the special category of motor vehicle tax (MVT). It enforces a token tax of PKR 20,000 on vehicles ranging between 1590 cc and 1990 cc as compared to PKR 9000 which is collected from the locally produced vehicles under the same category. Similarly, a token tax of PKR 25,000 is imposed on vehicles between 1991 cc and 2990 cc. On the other hand, the local vehicles are charged with PKR 12,000 for up to 2500 cc and PKR 15,000 for above 2500 cc engine capacity. The imported vehicles have another category for above 2990 cc which is charged with a token tax of PKR 35,000. Note here that there is no such category found in the locally assembled vehicles.

Perks of Islamabad registration:

On the other hand, Islamabad Excise holds no separate tax amount for imported vehicles. It means that there is no luxury tax charged on the registration of these vehicles. Anyone looking to register a vehicle finds it attractive enough to opt for Islamabad registration instead of Punjab. After all, a huge amount in the shape of luxury tax is waved off which is nothing less than an incentive for the vehicle owners. Another benefit offered by the registration through Islamabad Excise is the presence of only two registration fee slabs as compared to three in Punjab. The imported vehicles are charged with 2% of their total value after paying the customs duty ranging between 1000 cc and 1999 cc engine capacity whereas 4% for those exceeding 2000 cc category.

However, other taxes which include withholding tax and income tax are the same for Punjab and Islamabad. The annual token tax brings disproportional scenario as the vehicles of 1800 cc engine capacity registered in Punjab pay almost PKR 25,000 in comparison to roughly PKR 5000 for a vehicle registered in Islamabad for the same engine capacity. It is pertinent to mention here that the annual token tax is comprised of income tax and motor vehicle tax (MVT), the former of which is the same for the federal capital and Punjab.

Consequently, the difference in token tax, implementation of the luxury tax and additional registration fee slab has resulted in discouraging the vehicle owners to register their cars in Punjab. Meanwhile, Islamabad Excise has generated a huge amount of revenue at the expense of Punjab. Before the imposition of luxury tax in 2016, Punjab registered 10,141 imported vehicles which helped in generating total revenue of PKR 782.8 million. The revenue, however, dropped to 4271 in 2016-17. Despite the luxury tax, the revenue of PKR 343.2 million was generated which is less than half as compared to the previous year. Similarly, the trend continued as 4913 imported vehicles in the same category were registered in Punjab during 2017-18.

In the hindsight, imposing a luxury tax was a huge mistake made by the previous government as it resulted in a loss of revenue. According to the officials of Punjab Excise, the issue was raised in the Inter-provincial Coordination Committee during the previous provincial government. A flat taxation rate was suggested to increase the number of registrations in the province. Unfortunately, the effort went in vain as the luxury tax remained intact without any flat taxation in annual token tax.

The PTI-led Punjab government reduced the luxury tax on imported vehicles for the sake of revenue generation, however, the move has not paid dividends. According to a number of dealers in the province, the presence of luxury tax and difference in annual token tax has been the core reason for Punjab losing imported vehicle registrations. In the past couple of years, it has not only affected the excise department but also resulted in the loss of prestige of Punjab registered imported vehicles. A number of owners of imported vehicles demand for Islamabad registration to avail several incentives and save money.

It is high time that the government formulates a uniform luxury tax policy.

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