Federal Board of Revenue allows relief in income tax on old cars

Due to confusion in finance bill, owners were taxed double for lifetime tokens.

Rameez Khan July 27, 2013
In the Finance Bill 2013-14, Excise and Taxation Department was instructed to add ten years of income tax paid. PHOTO: FILE


Owners of vehicles of up to 1,000cc got some good news after the Federal Board of Revenue - after clarifying the policy - has allowed the Excise and Taxation Department to deduct lifetime token amount from the profession tax paid, The Express Tribune has learnt.

In the Finance Bill 2013-14, Excise and Taxation Department was instructed to add ten years of income tax paid, also termed as lifetime income tax, to the token tax amount.

Since 2012, the matter had been a bone of contention between the Federal Board of Revenue and the Excise and Taxation Department, when the excise department launched a scheme of lifetime motor vehicle token tax for vehicles up to 1,000cc.

The lifetime token for cars up to 1,000C is calculated at 10 times the cost of annual token fee (Rs10,000), plus the annual income tax element of Rs750 and the annual profession tax of Rs200. The total amount came to Rs10,950.

Afterwards, the government included the lifetime income tax head totaling Rs7,500 or Rs750 per year, to bring the total lifetime token amount to Rs17,750.

Due to this scheme, car owners were forced to pay double taxes as after the financial bill, ten years of income tax amount was also added in the total token amount even if the income tax was paid by car owners for the previous year. The scheme increased the amount of lifetime motor vehicle token tax from Rs10,770 to Rs17,750.

As per the new policy in the case of old vehicles, the Excise and Taxation Department deducts previous proceeds towards tokens from the lifetime token tax. In simple words, if a car (under 1,000cc) is three years old, its three year worth of tokens paid, which is Rs1,800,  will deducted from lifetime token tax amount excluding income tax paid.

According to the law, income tax on a vehicle can only be charged for ten years. Tenth year onwards, a car will only be charged for excise token tax, but not for income tax.

The taxation department through the summary it received from the FBR in July was informed to charge Rs7,500 income tax for vehicles up to 1,000cc engines from July.

In response to a letter by the department demanding clarification on policy, the FBR allowed the excise department to deduct income tax previously paid from the head of lifetime income tax on vehicles.

Excise and Taxation Department Director General Humayun Sheikh told The Express Tribune that all the offices of the department across the country have been informed of this letter from the FBR, and rebate will be given on income to old vehicle owners. He said the amount as income tax already paid will be refunded.

Confusion regarding life time token tax

What was being considered as small computing error by the Excise and Taxation Department has spread confusion amongst vehicle owners as the receipt they received after paying lifetime token taxes is only valid till 2014.

Motor Registration Authority’s Javaid Zaman Niazi said that the problem has come to their notice recently. He said that a new format will be prepared for receipt which will include the word lifetime token tax instead of expiration date.

Published in The Express Tribune, July 28th, 2013.

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