Dar directs revision in collection of sales tax on auto parts

Finance minister directs FBR to remove anomaly in collection of the sales tax which impacting costs of cars.

ISLAMABAD: Finance Minister Ishaq Dar on Monday acknowledged that the imposition of two per cent extra tax on sales of auto parts to the automobile manufacturers may escalate the vehicle prices, and directed Federal Board of Revenue (FBR) to institute a case to remove the anomaly in the imposition of the tax.

In a meeting with Pakistan Association of Automotive Parts Accessories Manufacturers (PAAPAM) in Islamabad on Monday, Dar directed officials of the ministry of commerce to hold a meeting with the industry representatives and prepare a report on the issues.

Industry representatives highlighted how Standard Regulatory Order 896(1), meant to recover additional sales tax at two per cent from parts sold in retail markets, was actually increasing the cost of vehicles being manufactured.

Dar admitted that this was an undesirable side effect of the tax aimed at collecting revenue from the value addition made by distributors, wholesalers and retailers of auto parts in the downstream supply chain who were previously outside of the net.

Asserting that the sales made by auto parts manufacturers to automobile manufacturers/OEMs were not to be treated as retail sales, he stated that it was not the intention of FBR to subject these sales to extra tax.

The finance minister directed FBR chairman to institute a case for removing such anomalies in the taxation system.

At the meeting, PAAPAM Chairman Usman Malik said that they had an extraordinary session with the prime minister during Pakistan Auto Parts Show 2014 in Lahore and were assured that the government is serious in resolving the issues confronting the country.

Malik gave a presentation to the finance minister on the current status of the automobile industry and the potential it has to make Pakistan a developed country in this regard given it lagged behind countries such as Indonesia and Brazil where 79 and 259 vehicles per 1,000 people respectively in comparison to 13 in Pakistan.

Level playing field for auto manufacturers

Dar hinted at formulating a stand alone policy for the automobile sector after having introduced a policy for motorcycles.

“We have given a new motorcycle policy and we will also formulate a stand-alone policy for the automobiles sector,” he said.

Claiming that almost 70% parts of automobile built in Pakistan are being manufactured locally, PAAPAM chairman informed that last year 1.6 million motorbikes were produced in Pakistan helping to directly support employment of 400,000 workers and indirectly employ 3.2 million people.

Auto part manufacturers also urged the finance minister on providing a level playing field for the local industry as compared to automobiles imported from abroad.

He further directed the officials of the ministry of industries and Engineering Development Board (EDB) to hold meeting with the stakeholders of the automobile industry in order to resolve outstanding issues.

The meeting was also attended by FBR Chairman Tariq Bajwa, Finance Ministry Adviser Rana Assad Amin, Additional Secretary Shahid Mahmood and senior officials of the ministries of commerce, industries and finance.