Sales tax on car dealers: CBR clarification
ISLAMABAD (October 02 2005): The Central Board of Revenue (CBR) on Saturday clarified that sales tax has not been imposed at the rate of 15 percent on vehicles. As per recently announced new procedure under SRO 951(I)/2005, only 10 percent of the sale price of second-hand vehicles, including commission amount, if any, is liable to sales tax at the rate of 15 percent, while 90 percent component of their sale price would not attract sales tax.
Some quarters have given a wrong impression that CBR has levied 15 percent sales tax on vehicles. This impression is not legally or factually correct because imports, manufacturing and sales of vehicles have never remained exempt from sales tax.
The only problem being faced by the automobiles sector was that car dealers were not able to avail input tax adjustment in case of old and used vehicles sold through them usually on commission basis because they did not have purchase sales tax invoices in respect of such vehicles.
Under the Sales Tax Act, 1990, being commission agents, car dealers are required to obtain sales tax registration even in the past and pay sales tax on the sale of motor cars or motor cycles sold by them either on commission basis or otherwise.
The new procedure has not imposed any new tax on car dealers. Instead, it has facilitated them in their efforts to comply with sales tax laws availing an extraordinary facility of notional input tax adjustment in cases where they do not have backup sales tax invoices in their names for old and used vehicles.
This facility is an exceptional arrangement under which only 10 percent of the sale price of the second-hand vehicles, including commission amount, if any, is liable to sales tax at the rate of 15 percent, and 90 percent component of their sale price shall not attract sales tax.
This formula shall be applicable even in cases where second-hand vehicles are brought to the registration authorities for transfer of registration without the involvement of car dealers. Thus, the scheme has an in-built equity aimed at promoting documentation of the business of auto dealership in the country without any discrimination or proneness to tax avoidance. No sales tax registration shall be required in cases where vehicles registrations are directly transferred from one person to another by motor registration officials.
The CBR has issued a special procedure for collection and payment of sales tax on motor cars and motors cycles through notification SRO. 951(I)/2005.
Under the procedure all assemblers, importers and dealers of vehicles are obliged to get registration and pay sales tax due on their taxable transactions under Sales Tax Law. Under the Sales Tax Act, 1990, special procedures for the collection and payment of sales tax are issued for such regimes where business practices and market dynamic carry special nature and deserve to be facilitated for the discharge of sales tax liabilities, the CBR added.
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