The Federal Board of Revenue (FBR) has declared that 17% sales tax will be applicable on sales and purchase of used cars only on value addition. The FBR revealed an assessment for the taxation in statutory regulatory order (SRO 931(I)/2020).
As per the board, the latest instructions will control the trade of used cars in Pakistan. Under the new regulations set by FBR, 17% sales tax is imposed on per transaction. According to the Federal Board of Revenue if a non-filer will do the business of sales and purchase then the trader has to pay an additional 3% tax.
Change in FBR Rules for Sales Tax on Used Cars
Under a new rule set by the bureau it further explains that, if a second-hand car is traded at a price higher than its first sale price, the variance volume between sale and purchase would increase. This step is taken by the tax collector because the majority of the used car dealers in the country are not listed with the tax regulatory body and do not pay sales tax while doing business with clients.
In the latest Finance Act 2020, the administration has announced an alteration to the Sales Tax Act 1990. The new law reads “In case of a registered person who is purchasing the used cars from public, on which the sales tax is already paid at the time of manufacturing or import, and later, sold in the open market after specific value addition, value of supply will be difference between sales and purchase price of said vehicles, based on valuation method defined by FBR, on the following formula, namely A-B:
Section ‘A’ is related to all charges and fees but it excludes the amount of sales tax charged, received by registered person from used vehicle buyers, while ‘B’ is related to all charges and fees, paid by the registered individual to the seller of the used vehicle. Provided that the entire amount paid or received against the transactions mentioned above is completed through the banking channel as required under Section 73 of the Sales Tax Act.
The authority revealed that the new law is to compel traders to register with the FBR and all the transactions must be done through banking channels.