Sales tax will now be levied on sale and purchase of used cars. Here's all you need to know

Do you think levying sales tax on the differential value of a used vehicle's trading is justified?

The Federal Board of Revenue (FBR) issued an SRO 931(I)2020 to amend The Sales Tax Rules, 2006. The board announced the decision to collect sales tax from sales and purchases of vehicles.

To calculate sales tax in this regard, FBR introduced a procedure that highlighted rules to collect sales tax on value addition on the trading, sale, or purchase of a used vehicle.

According to FBR sources, the rules of the procedure state:

  • The trader of the used vehicle is required to pay sales tax (already been collected at both manufacturing or import stage) on the differential of sale and purchase value of the used car.
  • There is a restriction of input tax adjustment on vehicles\’ input tax in section 8(1) of the S.T.A. 1990. Legally, once the entire sales tax component on higher/maximum value of sales has already been collected at the import or manufacturing stage.
  • In case, a vehicle is sold at a price lower than its purchase price, the value determined under this sub-rule shall be deemed zero.
  • No input tax credit shall be allowed to the registered person, which is attributable to any goods or services acquired to sell used vehicles.

How to calculate the sales tax on value addition?

According to the FBR, where a registered person is engaged in the business of purchasing and selling used vehicles from the general public on which sales tax had already been paid at the time of import or manufacturing, the value of supply shall be worked out by the following formula, namely: A-B.

A – the consideration in money, including all charges but excluding the amount of sales tax charged, received by the registered person from the used vehicle\’s buyer.

B – the consideration in money, including all fees, paid by the registered person to the used vehicle\’s seller. This is provided that the whole amount paid or received against the transactions mentioned above is made through the banking channel as required under Section 73 of the Sales Tax Act.

The FBR is currently working to ensure the proper implementation of sales tax on the sale and purchase of used cars. Do you think levying sales tax on the differential value of a used vehicle\’s trading is justified?

What are your thoughts on this? Please share with us in the comment section below.

  • In pakistan the prices of the vehicle are already higher than the other countries and you are thinking to impose more taxes this is really unacceptable and not fair for the people of Pakistan. Govt. Must think first to reduce the prices of the vehicle then impose taxes no issue…

  • Really injustice with pakistanies.Double taxation is no where in the world.What the hell is this govt trying to do?

  • levying tax is a govt prerogative but this may increase the price higher if a car invoice on 1 million in 2010 is sold 1.5 million in 2020 , the difference of 0.5 million will account 17 percent sales tax , now the seller will increase the value to cover off his selling price ..the condition of banking transaction will document the economy and earn revenue but inflated price would risk the over all sales and purchase. The other reason will be undocumented income , which allows ppl to buy things on cash .

  • i believe it is not the right time to introduce such kind of tax on used vehicles, unjustified tax it will give negative impact on used vehicle price of sale, moreover any taxes if govt willing to introduce they should make proper calculation to do make reverse calculation how much they need to recover illogical and irresponsible act of govt.

  • Why not to impose communism in Pakistan where everyone should work for the govt. all assets and resources belongs to govt and all citizens are govt property. In the name of new Pakistan, the PTI govt is actually screwing the general public. Have some pity on the poor people.

    • Extremely true. Ban Facebook as well, no whatsapp, only communism. After 70 years of independence “hum China ke aagay late gaye hain, aik CPEC kia bam gaya. Kal ko bastard chinese spider eaters criminals, killers, pakistan ko apnee colony bana lain gay. Aur yeh cocaine Niazi aur qadiani chief nay Pakistan ko bech dena hai China ko, just like inhon ne kashmir ka soda kia apnay yaaar moodi ke saath.
      Ay Khuda, PM Nawaz ko waapis le aa ! Ameen.

  • I’m British and have invested from overseas from 2nd generation, also an admirer of Imran Kahn. Big but, not happy with this second hand car tax. Pti should think this through as its a vote killer

  • Its very very bed decision , in pakistan cars are very expensive compare to other countries and now imposing new tax is totally a rabish. Gov should change his decision

  • Read number of articles & comments on the issue. Could not grasp it completely. As a common man, if I sell my car with appreciated value, do I have to pay 17% sales tax to the FBR on the appreciated amount I earned from the sale of the car? What is the role of registered dealers in it? Could some one explain in simple terms?

  • You have to give tax for breathing ur self, the time to come what the hell is this democracy…a failed govt all the time…

  • First of all these tax imposing morons should identify the reason for increase in price of used cars. The reason is devaluation of Pakistani currency. Now had the price of new car of the same model been lower than the old car, collecting sales tax would be justified. But now that the price of the same car is doubled and as a consequence the price of used car is increased. This would encourage people to avoid buying used cars as the delta between new and used car price would reduce

  • Shame on Imran khan and his govt. A total fail and a disgrace to the entire country. Get lost Imran Khan

  • This highlyy unjustified decision and same tax has been imposed on import of used cell phone. There is no depreciation cost but tax is being calculated on the basis of oginal value when ohone was launched. Thus going higky unfairr anf especially on govthoehsve some know how must reconsider the policy
    This not wsy run the govt but you have think out kf box. Same on those who give this suggestion and also sshame6on those which have passed yhe sro with thinking jts implication.

  • This should be applicable only to unregistered used cars, less than three years old, imported mainly from Japan, under import policy and sold by dealers at higher than the duty paid price given on customs GD . All subsequent sales are sold for less than that.

  • In many countries revenue is collected by governments in the form of significant stamp duty on used vehicles at the time of ownership transfer by registration authorities and it is usually 4 to 6 percent of the total selling price each time when the vehicle is sold. Issues like unjustified price appreciation of used vehicles and artificially hiked prices to own the new vehicles with reduced delivery time can be addressed by imposing appropriate regulations by the government. i.e. imposing higher transfer fee if vehicle is sold under certain mileage and within certain time from the time of manufacture. All regulations should protect the interests average and young citizens of Pakistan as well who earn medium salaries or own small businesses and owning their first car is a distant dream for them. PTI government should provide some “insaaf” to this major part of our society by discouraging the common practice to own a new vehicle in Pakistan or selling a vehicle on open letter. It seems like an extra jagga tax by investors and dealers rather than earning an actual profit on a vehicle. There are plenty of opportunities of earning ethical profits that can be explored rather than making many folds of profits in comparison to the actual cost on just 1 single vehicle in a span of few days or hours from production line to showroom delivery. These profits can be justified using man-made supply demand rules in this world but in the end everyone will be accountable for their unjustified money made through false business practices at the time of accountability.

  • It is unacceptable.price of Vevicles in pakistan are veey high and good vehcl is unaffordable. Kindly lower the price then impose tax

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