The Federal Revenue Board (FBR) has clarified the subject of sales tax on the purchase and sale of used cars in the marketplace. The news hit the entire car market like a heap of bricks, causing car buyers and sellers to panic.
To better understand the issue, Lahore Herald spoke with Arshad Shehzad, a leading sales tax expert in Karachi, to discuss the latest developments. The discussion was full, where Shehzad brought up some key points that might need a little simplification from RBF. Here are some of the ideas Arshad Shehzad shared during the discussion:
Who is the sales tax on used cars for?
Shehzad told Lahore Herald that the sales tax has not been imposed on buyers or sellers of old and used cars. It would apply to any value added (renovation) / profit that dealers make by selling a used car.
The purpose of these rules is to take advantage of the used car dealer’s sales tax on the differential value of buying and selling the used vehicle. These distributors can collect a specified amount from buyers to offset the amount of sales tax they paid to FBR.
These rules do not apply to non-attached people or to people who want to sell their car directly to other buyers, without any concessions between the two.
How does this affect the dealer community?
Shehzad told Lahore Herald that under current law, sales tax is levied on the full value of the vehicle, which is heavy and excessive. This means that if you sell rupees as a distributor. 15 more, you would have to pay a percentage of the sales tax on the entire Rs. 15 more.
While now, at the request of interested business circles, who have sought the support of all the major chambers of commerce in the country, a clause has been added in the Finance Act that will provide an exemption to registered taxpayers for you to pay only 17% tax about the profit from the sale or the added value of the vehicle.
How does users’ car sales tax affect buyers and sellers?
Shehzad said the sales tax only applies to used car dealers who are registered as taxpayers. Only they can collect the sales tax amount from buyers.
These rules do not apply to non-attached people or to people who want to sell their car directly to other buyers, without any concessions between the two. However, this could lead dealers to buy their cars at much lower rates from car owners and sell them at a much higher profit. This is where buyers and sellers must remain vigilant.
Is the sales tax on used cars justified?
Arshad Shehzad said the vehicle sales tax is already collected at the manufacturing and import stage. There is a restriction on the adaptation of input tax to vehicle input tax within the meaning of Article 8 (1) of the S.T.A. 1990. Legally, the entire sales tax component on the highest / maximum value of sales has already been collected at the import or manufacturing stage.
Arshad Shehzad wondered that Sindh’s sales tax authorities also levied sales tax on this activity under tariff heading 9806.4000 under the heading of services provided by a car dealer. The scope of this service is regulated in Section 2 (20-B) of the Sindh Sales Tax Act 2011.
He said there were already a number of disputes over the classification of goods and services and the jurisdiction to collect sales tax between federal and state tax authorities due to the different nature of the business. Unfortunately, in the end, no concrete effort is being made to outline a unified policy and resolve these differences, Arshad Shehzad added.