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September 26, 2018

Ban on non-filers, boon for big filers


September 26, 2018

LAHORE: The matter of buying property and new cars by non-filers has become a contentious issue in the National Assembly despite the fact that the ban imposed in this regard by the previous government favoured big contractors and used car importers.

The non-filers for instance were barred from buying locally-made new cars but they could buy already registered used cars or unregistered imported used cars.

The purpose seems to discourage the tax evaders from buying costly property and vehicles. It is interesting to note that this purpose was defeated in case of cars as all three-year-used imported cars are priced higher than the similar cars produced in Pakistan. Brand new Pakistani made 1000 cc Suzuki Wagon-R is priced Rs1.24 million while three-year-old imported 650 cc Suzuki Wagon-R costs Rs100000 more. Similarly three-year-used imported Toyota Vitz is more expensive than similar cars produced in Pakistan.

We should discourage tax evaders by all means but the rule should be applied evenly on all cars that are registered for the first time in Pakistan. In fact the non-filers should have been completely barred from buying unregistered used cars that are more expensive and provide them an opportunity to park illegal money.

It was because of this policy that we saw a drop of 20 percent in the sales of new cars manufactured in Pakistan in the month of August.

According to the previous law the non-filers could buy even used luxury cars worth Rs10-20 million.

This government in the new finance bill though has limited the purchase of used cars by non-filers to Rs5 million.

This amount is still higher than the price of any car produced in Pakistan.

The ban was imposed in haste most probably to benefit the importers of used cars as there remains a technical lacuna in this regime as some buyers lease cars through banks. Banks are all tax filers and the car remains in the name of bank till the buyer pays the total amount in 3-5 years.

Thus technically the non-filers can still get a brand new car which will be transferred in their name after the aforementioned period.

Another point in this regard is that Pakistan is facing foreign exchange crunch and the amount of foreign exchange used in the import of used cars is much higher than the foreign exchange used in the manufacture of new vehicles in Pakistan.

All the three main assemblers of cars have localised their highest selling models by 68-74 percent.

That saves lot of foreign exchange. Moreover the duty structure of used imported cars is such that the tax on each imported used car is much less than the tax that is levied on new cars produced in the country.

This is despite the fact that used cars are sold at much higher price than similar cars produced in the country. If the government is serious in penalising the tax evaders it should ban the purchase of all vehicles that are registered for the first time in Pakistan.

As far as the property is concerned the law was enacted in haste as the Finance Minister rightly pointed out that this move effectively debarred overseas Pakistanis from buying properties in Pakistan.

Moreover there is a technical flaw in the law as well as the big builders, which are filers, could buy big chunks of land.

They can then construct houses or apartments on that property and lease out the same to the non-filers.

The property would technically remain in their name or in the name of a bank until the final payment is made in 10-25 years.

This move has created a slump in the property market and the big construction houses are purchasing the land at low rates with an aim to mint money down the line.

The state should find out a better way of bringing tax evaders into tax net rather than creating trouble for the local car industry and real estate.

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