State of confusion: Excise dept stumped by vehicle tax hike

Seeks clarification from the Federal Board of Revenue

LAHORE: The federal government has announced a drastic 400% increase in income and withholding tax which will be collected at the time of new vehicle registration, transfer of vehicle ownership, and with token tax. The new tax has been included in the budget for the next fiscal year.

The government has also decided to change the former ‘one-time’ taxes to annual levies because of which vehicle owners who pay the token tax will have an additional burden of paying Rs3,000 to Rs200,000, while non-filers will have to pay Rs6,000 to 400,000 annually.

The impractical nature of the tax schedule has puzzled the Punjab Excise and Taxation Department which – suspecting an inadvertent error in the finance bill – has sought a written clarification from the Federal Board of Revenue (FBR).

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According to details obtained by The Express Tribune, officials at the Excise and Taxation Department have been quite worried lately because of the massive increase in taxes. Earlier, companies that manufactured cars locally used to collect a one-time withholding tax from the buyer and would write down the details on customers’ sales invoices. According to page numbers 154 and 155 of schedule 231 in the finance bill, however, the withholding tax will now be fixed annually on a per seat basis.

For a new 850cc car, a withholding tax worth Rs7,500 will be collected per seat annually, while for  851cc to 1000cc cars, the amount will be Rs15,000. Similarly, for 1001cc to 1300cc, the annual withholding tax will be Rs25,000 per seat, Rs50,000 for 1301cc to 1600cc cars, Rs75,000 for 1601cc to 1800cc cars, Rs100,000 for 1801cc to 2000cs cars and lastly, for 2001cc to 2500cc cars, an annual withholding tax of Rs150,000 will be collected per seat each year.

Prices will be higher for 2501cc to 3000cc cars, with Rs200,000 to be paid per seat annually, while for 3000cc cars, a withholding tax of Rs300,000 will be collected per seat annually.

Likewise, the withholding tax at the time of vehicle transfer has also been increased. According to the new tax schedule, for 851cc to 1000cc cars, Rs5,000 worth of withholding tax will be collected per seat annually, Rs7,500 for 1001cc to 1300cc cars, Rs12,750 for 1301cc to 1600cc, Rs18,750 for 1601cc to 1800cc cars, Rs25,000 for 1801cc to 2000cc cars, Rs37,500 for 2001cc to 2500cc cars, and Rs50,000 for 2501cc to 3000cc cars. For cars which have an engine capacity of more than 3000cc, Rs62,500 will be collected per seat annually.

In the case of non-filers, the tax ratio will be increased by 100%. According to the finance bill, in case of the payment of token tax by non-filers, Rs3,000 to 4,000 will be charged for 1001cc to 1199cc cars while for 1200cc to 1299cc cars, there will be an increase of Rs,3500 to Rs5,000.

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Similarly, Rs5,000 to Rs7,500 of withholding tax will be imposed on 1300cc to 1499cc cars, Rs7,500 to Rs12,000 for 1500cc to 1599cc cars, and Rs9,000 to Rs15,000 for 1600cc to 1999cc cars. For cars with engine capacities above 2000cc, the proposed income tax will be up to Rs20,000.

According to officials at the Excise and Taxation Department, there might be some typographical error in the preparation of the finance bill because the schedule provided in the document is not practical and the public will likely reject it.

Officials further added that if the tax schedule is correct then they would start collecting it from July 1 in accordance with the new rate. The department has also updated its software to accommodate the changes.

Published in The Express Tribune, June 30^th, 2019.