Keeping pace: Islamabad Excise Dept preferred for vehicle registration

Luxury tax, difference in token tax dissuade vehicle owners from getting registered in Punjab

LAHORE: Despite the downward revision of luxury taxes on imported vehicles, the Punjab Excise and Taxation Department has failed to attract new owners of imported cars.

Vehicle owners still prefer to get their vehicles registered from Excise and Taxation Department of Islamabad Capital Territory due to lower taxes and other incentives.

In 2016, the Punjab Excise Taxation and Narcotics Control Department imposed luxury tax on imported vehicles with engine capacities over 1300cc through an amendment in the Punjab Finance Act 2016 to collect more revenue from the affluent.

Subsequently, a luxury tax of Rs70,000 was imposed on vehicles with engine capacities ranging from 1,300cc to 1,500cc, Rs150,000 on vehicles between 1501cc to 2,000cc, Rs200,000 on 2,001cc to 2,500cc and Rs300,000 on imported vehicles with engine capacities of 2,500cc and above.



Other than the luxury tax, imported vehicles in Punjab are also liable for four types of taxes, including registration fees, income tax, withholding tax and token tax. The registration fees was 2% of the total value of the vehicles after paying the customs duty for vehicles between 1,300cc to 1,500cc, 3% for vehicles up till 2,000cc and 4% for vehicles exceeding 2,000cc.

The token tax, according to the official data available on the department’s website, was Rs1,800 for 1,300cc vehicles, Rs6,000 for vehicles between 1,301cc, 1,499cc and 1,500cc, and Rs9,000 for vehicles between 1,501cc to 1,599cc.

For vehicles above 1,589cc, there was a special category of motor vehicle tax (MVT) for imported vehicles under which Rs20,000 was imposed on vehicles between 1,590cc to 1,990cc instead of the tax of Rs9,000 imposed on local vehicles of the same category. There was a tax of Rs25,000 imposed on vehicles between 1,991cc to 2,990cc as against tax of Rs12,000 imposed on vehicles of up to 2,500cc and Rs15,000 for vehicles over 25,00cc.

Moreover, a tax of Rs35, 000 was imposed on vehicles above 2,990cc - a category that does not exist for locally-assembled vehicles.

As against that, the excise department in Islamabad has no separate inflated tax brackets for imported vehicles, implying that there is no luxury tax for vehicles registered in Islamabad, which vehicle owners see as a huge incentive. The remaining taxes, such as income tax and withholding tax (advance tax) are identical in Islamabad and the rest of Punjab. Islamabad also has only two registration-free slabs instead of three in Punjab for vehicles with 1,300cc and above. The registration fees is 2% of the total value of the vehicles after paying the customs duty for vehicles between 1,000cc to 1,999cc and 4% for vehicles exceeding 2,000cc.

Similarly, an annual token tax mainly comprises two taxes: motor vehicle tax (MVT) and income tax. Whereas the income tax is the same for both Punjab and Islamabad, the token tax was massively disproportionate. In Punjab, 1,800cc vehicles end up paying roughly Rs24,700 in annual token tax, whereas a vehicle of same category may end up paying around Rs5,200 in federal capital.



The imposition of luxury tax and the difference of token tax ended up dissuading vehicle owners from the getting their cars registered in Punjab. As a result, instead of generating more revenue as expected, the Punjab Excise Department has lost more than half of its revenue which, according to a motor-vehicle dealer claim, went to Islamabad.

As per official figures available with The Express Tribune, Punjab Excise and Taxation Department registered 10,141 vehicles in the year 2015-16 to generate total revenue of Rs782.8 million.

Whereas, after the application of luxury tax, the total number of imported vehicles registered in 2016- 17 in the category of 1,300cc and above dipped to 4,271 that - despite the addition of luxury tax - only generated Rs343.2 million. The same was observed in 2017-18, when a total of 4,913 vehicles were registered in Punjab.

According to the Punjab Excise Department officials, the department in the meantime also tried taking up the issue to the Interprovincial Coordination Committee through the then provincial government to suggest imposing flat taxation rates throughout the country in a bid to increase the number of registrations in the province in accordance with the law. The entire exercise, however, turned out to be fruitless.

Keeping in the view the loss of revenue to the department and realising the mistake of the previous provincial government, the PTI-led Punjab government finally reduced the luxury tax on imported vehicles. This move alone, however, has not yielded any positive outcome for the Punjab Excise and Taxation Department.

Even if a thousand vehicles are forced to register through crackdowns against un-registered vehicles, it would still not be a satisfactory position for the provincial excise department. The main reason behind opting for registration in Islamabad, according to several dealers, was the mere presence of luxury tax and difference in annual token tax.

According to Ishtiaq Ahmad, chairman of car showroom association of the Moulana Shaukat Ali Road - one of the two biggest car markets in Lahore - only a tiny fraction of imported vehicles were opting for Punjab registration.

“Due to the major difference in taxes, owners prefer Islamabad number,” he said. “Imported Punjab number vehicles have lost their prestige in the last few years and as a result, Punjab has ended up losing huge amount of exchequer that is now alnding in Islamabad.”

He further said that many owners specifically demand to get their vehicles registered in Islamabad and ask for help, adding that the government should devise uniform policy throughout the country.

Published in The Express Tribune, May 9^th, 2019.

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