The Federal Board of Revenue (FBR) has offered some clarity regarding thematter of sales tax on buying and selling of used cars in the market. Thenews fell on the entire automotive market like a ton of bricks, sendingboth the buyers and sellers of the car into a state of panic.
To gain a bit of thorough insight into the matter, ProPakistani sat with aprominent Karachi-based sales tax expert, Arshad Shehzad to discuss thelatest development. The discussion was thorough, where Shehzad brought afew important points to light that perhaps required a bit of simplificationon FBR’s part. The following are some of the insights that were shared byArshad Shehzad in the discussion:*Who is the Used Car Sales Tax for?*
Shehzad told ProPakistani that the sales tax has not been imposed on thepurchasers or sellers of old and used cars. It would be applicable to anyvalue addition (reconditioning)/profit made by the dealers upon selling aused car.These rules do not apply to the non-filers or the people who wish to selltheir cars directly to other buyers, without any dealership in the middle.
The objective of these rules is to tap sales tax from the used car dealerson the differential value of sale and purchase of the used vehicle. Suchdealers can charge a particular amount from the buyers to offset the salestax amount that they paid to FBR.——————————*How Does It Affect the Dealer Community?*
Shehzad told ProPakistani that as per the existing law, sales tax ischarged on the complete value of the vehicle, which is harsh and excessive.This implies that if, as a dealer, you sell a Rs. 15 lac car, you’d have topay a percentage of sales tax on the entire Rs. 15 lac.
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Whereas now, upon the request of the concerned business community, whosought support from all the major chambers of commerce of the country, aclause was added in the Finance Act, whereby relief will be offered to theregistered tax filers such that they’d only have to pay 17% tax on theprofit made upon sale or the value added to the vehicle.*How Does the User Car Sales Tax Affect Buyers & Sellers?*
Shehzad said that the sales tax will only be implicated on used cardealerships that are registered as tax filers. Only they can charge thesales tax amount from the buyers.
These rules do not apply to the non-filers or the people who wish to selltheir cars directly to other buyers, without any dealership in the middle.However, this could result in dealerships to start buying their cars atmuch cheaper rates from the car owners and selling them at a much higherprofit. That is the area whereby the buyers and sellers would have toremain vigilant.
