The government is considering to reduce taxes on new imported and locally assembled cars of up to 800cc engine capacity in the upcoming budget aimed at bringing these within the purchasing power of the middle class.
The proposal, which will be further fine-tuned, seeks to cut import duties and taxes on new imported cars by up to 63% and reduce them by nearly 7% for locally made cars, sources in the Ministry of Industries told The Express Tribune.
The Reduction in Taxes
According to information, the proposal includes abolishing 50% regulatory duty, either eliminating 7% additional customs duty (ACD) or reducing the customs duty by the same percentage and abolishing 2.5% federal excise duty (FED) on new imported cars.
In addition to that, there is also a proposal to abolish 5% withholding tax (WHT) and reduce the standard general sales tax (GST) rate of 17% to 12% on the import of new cars of up to 800cc.
The existing combined taxes and duties on new imported cars of up to 800cc are about 132% of the price which, if this proposal is implemented, will come down by 63% of the value of imported cars, said the sources. The price of a new imported (small 800cc) car may go down by up to Rs 400,000 subject to the implementation of the proposal.
These taxes have been kept high to provide protection to local assemblers who have long been fleecing the consumers. New vehicles can be imported by anyone against payment of duties and taxes levied under the existing import procedures and requirements laid down in the Import Policy Order and Customs law.
The sources said that there is also a proposal to abolish 2.5% federal excise duty, reduce the GST rate to 12% and abolish Rs 7,500 advance income tax on locally made cars of up to 800cc. Subject to endorsement of the proposal, the price of a 660cc Suzuki Alto VXL may fall by Rs 109,000 to Rs 1.53 million, said the sources.
However, various factions have started lobbying against the proposal and the matter is now to be discussed by the finance minister and the prime minister for a decision, said the sources.
Reportedly, the proposal has been worked out on the direction of Prime Minister Imran Khan who wants small cars to be in the reach of the middle class that currently cannot afford them. Finance Minister Shaukat Tarin is said to be in favor of reducing some taxes, but he is wary of its negative implications for the revenues, said the sources.
One suggestion is that in order to compensate for some of the revenue losses, the duty rates of 1,300cc and above may be increased, said the sources. There has been influx of imports of largely expensive brands in this fiscal year.
According to information, during the July-April period of this fiscal year, Pakistanis imported Rs 297 billion worth of vehicles and paid Rs 175 billion in duties and taxes at the import stage, according to the Federal Board of Revenue (FBR) statistics. The Rs 175 billion was equal to 59% of the value of these vehicles. The taxes collected at the local stage are in addition to Rs 175 billion.
There was an increase of 68% in the import of vehicles and consequently government duties and taxes also jumped by 77% during this period. The government collected Rs 85 billion in customs duty, up 76%, Rs 67.2 billion in sales tax which is higher by 61%, Rs 15 billion in income tax, up 119% and Rs 7 billion in federal excise duty, higher by 367% during the July-April period, according to the FBR figures.
Used vehicles are not allowed to be imported into Pakistan in normal course of import procedure. The law, however, provides an exception in this regard and used vehicles can be imported by overseas Pakistanis under personal baggage, gift scheme and transfer of residence.
Full Story: The Express Tribune