Budget 2018-19: As non-filers barred from purchasing new vehicles, auto sector set for a surprise

Published: April 30, 2018
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Government declares non-filers not eligible to purchase automobiles. PHOTO: REUTERS

Government declares non-filers not eligible to purchase automobiles. PHOTO: REUTERS

KARACHI: Local auto assemblers as well as non-filers of income tax returns were in for a rude shock after the government announced the federal budget for 2018-19.

Not only did the government bar non-filers from purchasing property that has a declared value of over Rs4 million, it also put curbs on them from buying new motor vehicles if their names do not feature in the active taxpayers’ list (ATL) of the Federal Board of Revenue (FBR).

“Non-filers shall not be permitted to purchase new motor vehicles manufactured in Pakistan or new imported vehicles,” states the Finance Bill for 2018. If passed by the National Assembly, the proposal would be effective from July 1.

‘Federal budget is people-friendly’

Pakistan requires all its citizens whose taxable income for the year exceeds Rs400,000 to file income tax returns. The process is the government’s way of keeping a record on revenue collection, accumulation of wealth and generally, verify if tax submitted is in line with earnings for the year.

However, in a country of 207.7 million, only 1.26 million returns were filed last year. The proportion of returns filed to overall population stands at 0.6%, and conveys the dismal picture of tax collection in the country.

With this in mind, the PML-N government has taken upon itself to introduce various measures that penalise non-filers, and motivate them through punishment to file returns during its tenure.

The latest measure in the series of punishments is disallowing non-filers from purchasing new vehicles, a move that has the potential to drastically change the auto industry’s landscape, increase consumer financing, as well as encourage citizens to file tax returns.

However, the reaction to the measure – that went largely unnoticed on the day of the budget – has been an adverse one from the industry.

“It will jeopardise all our efforts to counter the menace of premium, as the decision will motivate investors to buy cars and sell to non-filers on a hefty premium,” an industry official told The Express Tribune.

The official recommended the government to increase the difference in tax applicable for filers and non-filers on purchase of vehicles. Currently, non-filers already have to pay a higher amount in withholding taxes and vehicle registration costs.

“This will increase the government’s revenue as well.

“We are hopeful that government will consult stakeholders before the step is implemented. It directly affects one of the biggest industries in Pakistan.”

The budget measure comes at a time when the country’s auto sector is undergoing a massive growth period, and sales figures have touched 192,734 units in nine months of 2017-18, a 22% year-on-year increase.

Motivated by the growth, new auto players are also vying to make a place by setting up assembly/manufacturing plants in the country.

Ghandhara Nissan has already announced the launch of Datsun vehicles, and is expected to roll out variants in 2019.

Lucky Cement is involved in a joint venture with Kia Motors, while Nishat Mills and Hyundai Motor Company are also in the process of entering the market. The three new players would add to the existing three Japanese companies operating in Pakistan, adding spice to the fight for a share in the growing market.

However, the budget measure could possibly dent the auto sector’s growth, says the industry official.

On the other hand, the government looks to be firm in its decision.

“Those on the ATL will be able to buy cars. It will be the responsibility of the companies to see if their customers feature on the list,” FBR’s Member Inland Revenue-Policy and spokesman Dr Muhammad Iqbal told The Express Tribune.

The move to disallow non-filers from vehicle purchase could give rise to changes in the auto sector. It is likely to increase the prices of used cars due to greater demand, while also forcing non-filers to look for alternatives.

The historic budget

One choice for non-filers could be to purchase vehicles in the names of their trusted compatriots who are filers.

However, Iqbal said the move would be a risk on part of the filer of income tax returns.

“This is a risk the market will take. If a filer allows the non-filer to buy the vehicle he will have to explain the source of income (in his returns).”

Analysts believe that while non-filers may find a way out of the conundrum, it is likely to dent sales of the auto sector that has seen its market capitalisation shoot in recent years.

“Right now, the only way out I see is if people start filing tax returns,” said an analyst. “The other way that could work is if you lease the vehicle through a bank. Even then, you will have to become a filer by the time the lease period ends.”

The move, if implemented in its form, is likely to boost consumer finance and be a positive for banks that are expected to see interest-rate hikes this year. It could also lead to greater awareness on tax returns, eventually meaning a higher number of filers.

The writer is business editor at The Express Tribune

 

Published in The Express Tribune, April 30th, 2018.

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Reader Comments (16)

  • Sam
    Apr 30, 2018 - 9:02AM

    Question is:

    In budget motor-vehicle word is used. It is important to clarify what is motor-vehicle, as motor-vehicle also includes motorcycle.Recommend

  • Muneer
    Apr 30, 2018 - 11:26AM

    Rest assured that the step of not selling cars to non filers will have great negative impact on auto industry.It would also result in all kinds of lawlessness as non filers will not transfer the purchased cars in their names resulting in many menaces.The step is unlikely to result in any new tax payers instead it is more likely to end up in loss of revenue to government on various counts.Recommend

  • BrainBro
    Apr 30, 2018 - 11:31AM

    With such low tax rates; more people should start paying them. Recommend

  • Sleeker
    Apr 30, 2018 - 12:01PM

    The article only focuses on new booking. What about sale / purchase of used car. Recommend

  • Badar Shehzad
    Apr 30, 2018 - 1:00PM

    The auto-mafia is crying wolf yet again because they know this will impact sales. A simple solution to avoid such premiums is simply to stop registration and transfer of vehicle to non-filers.Recommend

  • Shahzad
    Apr 30, 2018 - 1:17PM

    I wonder how the writer has totally ignored overseas Pakistanis to be mentioned in his article, We earned abroad and bring huge remittances to Our beloved country for buying property and vehicles but still considered Non Filers and can’t buy property or vehicles on our own name which is very unfortunate,
    this dumb government has not created any exceptions in the law for overseas Pakistanis which are totally exempted for paying any sort of taxes as per fbr.Recommend

  • Just Someone
    Apr 30, 2018 - 1:49PM

    @Shahzad: As an overseas Pakistani, I can tell you that this is not an issue as you can file a tax return and indicate that all your income is tax exempt in Pakistan. Also this bar on purchase of property is for resident Pakistanis who are not tax filers. As an expat you should already have a NICOP or POC.Recommend

  • Just Someone
    Apr 30, 2018 - 1:52PM

    What about the imported used cars that are upto 3 years. Non-filers should be barred from purchasing those as well. And if possible from purchasing locally produced cars that are upto 3 years old.Recommend

  • concerned
    Apr 30, 2018 - 2:07PM

    FBR is the villan here not the non filers. FBR needs to come up with a simple way to file tax returns and spare the nation from agony of their ridiculous software.

    FBR also need to suggest to the government to abolish income tax altogether. Why should the people pay tax on their hard earned income, income tax is a war tax which originated in the 19th century or so as they were limited options for the government to generate revenues back then, we are in the 21st century now it is not the people fault if the government cant figure out other ways to generate revenues. Recommend

  • Fahim
    Apr 30, 2018 - 2:11PM

    Neither case should be registered of non-filer nor any case should be carried in courts filed by a non-tax filer. Recommend

  • concerned
    Apr 30, 2018 - 2:36PM

    Hilarious decision which would certainly negatively impact auto industry. Sales will drop as there are more Non-filers than filers.

    if the government is so desperate to increase tax return filers why cant they come up with innovative ways to file returns rather than threatening people and their rights to buy stuff ..that is what dictators do.

    There are other countries who are dealing with the same issues. ‘Ready Returns’ is one which is a already filled out form for salaried class in which a filer has either to agree or decline to the already filled tax return form it takes less than minute to file a tax return. Why should our salaried class waste their time to fill tax return forms, is their time of no value.

    Rulers & dictator mindset is at display here.Recommend

  • Expats [Pakistan]
    Apr 30, 2018 - 4:33PM

    @Shahzad: expats are not under this law. because they are not earning money here in Pakistan. Expats have tax exemption already Recommend

  • Mast
    Apr 30, 2018 - 6:09PM

    A bit unfair for overseas Pakistanis who cannot buy property/vehicle in their homeland.Recommend

  • khan
    Apr 30, 2018 - 9:19PM

    I am a filer and wonder why people are afraid of filling tax returns if they have legitimate earnings. The IRIS system is very easy and user friendly so please give it a try and do not make issues of non issues Recommend

  • shafiq ahmad
    Apr 30, 2018 - 9:47PM

    if u make things easier people will not hesitate in being filers. but u make things so difficult and people are put in so much trouble that they do tauba in cooperating with government.Recommend

  • Gemini
    May 1, 2018 - 12:45AM

    Offer free lawyers to common people who can help people file their tax returns and you will see increase in numbers. 90% people don’t even know how to file tax return.Recommend

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