Which cars are affected by FBR’s 25% sales tax?

WEB DESK: In a recent development, the Federal Board of Revenue (FBR) has implemented a significant policy change by imposing a 25 per cent sales tax on domestically manufactured or assembled cars with an invoice price exceeding Rs4 million.

This move is expected to have a profound impact on the automotive landscape in Pakistan, particularly affecting a broad spectrum of vehicles, including popular hatchbacks such as the Suzuki Cultus (VXL/AGS) and Suzuki Swift, as well as sedans like the Honda City and Toyota Corolla.

The FBR’s decision, communicated through a Friday notification, maintains that the 25 per cent sales tax will persist on locally manufactured or assembled vehicles with an engine capacity of 1400 cc and above.

This decision stems from prior approvals granted by the Economic Coordination Committee (ECC) and the federal cabinet during the tenure of the former caretaker government.

The auto industry in Pakistan, already grappling with challenges, has expressed concerns over this decision.

Local auto manufacturers have called on the government to reconsider the increased sales tax, arguing that it would disproportionately affect domestic car makers rather than importers of used cars.

According to FBR estimates, the new taxation measures are anticipated to generate an annual revenue of Rs4 to Rs4.5 billion.

The ECC had initially approved the imposition of a 25 per cent GST on all vehicles above 1400 cc, but the FBR introduced an additional condition, stipulating that vehicles with a price exceeding Rs4 million would be subject to the increased GST.

Previously, vehicles with an engine capacity above 1400 cc were subject to a 25 per cent GST. However, with the latest amendment, the price element has been incorporated, requiring vehicles priced above Rs4 million within this category to pay 25 per cent GST, up from the previous 18 per cent.

It is noteworthy that for vehicles up to 850 cc, the GST rate remains fixed at 12.5 per cent. The government had already imposed an enhanced GST rate of 25 per cent on luxury vehicles in the last budget, targeting those with an engine capacity exceeding 1400 cc.

An FBR official noted that enhanced GST rates on luxury vehicles are a global practice aimed at curbing their prevalence.

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