FBR Introduces 25% Sales Tax on Motor Vehicles to Boost Revenue

FBR Introduces 25% Sales Tax on Motor Vehicles to Boost Revenue

Islamabad,  – The Federal Board of Revenue (FBR) in Pakistan has announced a significant change in its tax policy by introducing a 25 percent sales tax on specific categories of motor vehicles. This move, detailed in SRO 370(I)/2024, aims to generate additional revenue and reduce the use of non-essential and luxury items.

The new rate represents a significant increase from the standard 18 percent sales tax, and it applies to specific categories of motor vehicles. The key changes include:

Engine Capacity: Locally manufactured or assembled vehicles with an engine capacity of 1400CC and above under PCT Code 87.03 will now be subject to a 25 percent sales tax.

Price Point: Locally manufactured or assembled vehicles with an invoice price (excluding sales tax) exceeding Rs 4 million under PCT 87.03 will also face a 25 percent sales tax.

Double Cabin Pick-ups: The new rate will apply to locally manufactured or assembled double cabin (4×4) pick-up vehicles under PCT 87.04.

The Economic Coordination Committee (ECC) of the Cabinet approved this increase in the General Sales Tax (GST), aiming to address revenue shortfalls. However, this decision has raised concerns within the automotive industry, particularly regarding its potential impact on car prices and the broader economic implications.

The Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) has voiced strong objections to the 25 percent sales tax increase. PAAPAM leaders, including Chairman Abdul Rahman Aizaz, SCV Mumsahd Ali, and VC Taufique Sherwani, have warned that this increase could lead to a surge in car prices, potentially reaching Rs 4 million or more. They argue that the previous rise in sales tax, coupled with other taxation measures and the devaluation of the rupee, has already caused a significant drop in automobile sales.

PAAPAM noted that the automotive industry has faced numerous challenges, such as soaring energy costs, a substantial currency devaluation, high financing rates, and over 40 percent taxation on every car sold. These factors have resulted in a 30 percent reduction in automobile sales compared to 2021-22.

The new sales tax increase has raised concerns about the impact on employment, tax collections, and the health of the automotive industry in Pakistan. As stakeholders engage in discussions with relevant authorities, the industry is bracing for the potential consequences of the new tax rates.

The FBR’s new tax policy is a part of the government’s broader effort to address revenue generation. However, as the automotive industry adapts to these changes, it remains to be seen how this tax increase will affect consumers, businesses, and the overall economic landscape in Pakistan.