FBR imposes 25% sales tax on cars with over Rs4m price. The Federal Board of Revenue (FBR) has stirred controversy in Pakistan’s auto industry by announcing a 25% sales tax on domestically manufactured or assembled cars exceeding an invoice price of Rs4 million.
The move, outlined in a recent FBR notification, has drawn criticism from industry stakeholders who fear its adverse impact on an already beleaguered sector.
According to the notification issued on Friday, the 25% sales tax will apply to locally produced or assembled vehicles with engine capacities of 1400cc and above.
The genesis of this tax hike lies in the approval granted by the Economic Coordination Committee (ECC) and the federal cabinet during the tenure of the former caretaker government.
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Under their mandate, a 25% general sales tax (GST) was greenlit for vehicles manufactured domestically, priced above Rs4 million, possessing engine capacities exceeding 1400cc or featuring double cabins.
However, Pakistan’s auto manufacturers have swiftly voiced their discontent, urging the government to reconsider the elevated sales tax.
Their primary contention is that such measures unfairly burden domestic car manufacturers while sparing importers of used vehicles.
The FBR, meanwhile, anticipates substantial revenue gains from these taxation measures, estimating an annual collection of between Rs4 to Rs4.5 billion.
Explaining the rationale behind the decision, FBR officials underscored that while vehicles above 1400cc engine capacity were previously subject to a 25% GST, the incorporation of a price-based criterion now mandates a similar tax for vehicles priced over Rs4 million.
This represents a departure from the earlier 18% GST rate for such vehicles.
Conversely, smaller vehicles with engine capacities up to 850cc will continue to enjoy a lower GST rate of 12.5%, reflecting the government’s nuanced approach to taxation within the automotive sector.
Notably, the government’s move to levy an enhanced 25% GST rate on luxury vehicles above 1400cc aligns with global trends aimed at discouraging extravagant spending on high-end automobiles.
Despite these justifications, the decision has sparked debates within Pakistan’s automotive landscape, with stakeholders urging policymakers to strike a balance between revenue generation and safeguarding the interests of local industry players.
As FBR imposes 25% sales tax on cars with over Rs4m price, the fate of Pakistan’s auto sector hangs in the balance, awaiting the government’s response to industry concerns.
