Tax collection from new car registration falls 15.3pc

KARACHI: The collection of withholding tax from registration of new motor cars posted 15.3 percent decline to Rs9.58 billion during fiscal year 2018/19 as compared with Rs11.31 billion in the preceding fiscal year.

Sources in the Federal Board of Revenue (FBR) on Thursday said that decline in revenue collection was due to the restriction imposed on registration of motor vehicles by non-filers of income tax returns.

Through Finance Act 2018 a new section was introduced to Section 227C to the Income Tax Ordinance, 2001. Under the new section, the government imposed a ban on registration of locally manufactured motor vehicles or for first registration of an imported vehicle.

The sources said that the restriction was imposed on the non-compliant taxpayers in order to force them to file their annual income tax returns and wealth statements.

However, through Finance (Supplementary) Act, 2018 in September 2018 the condition was lifted on registration of motor vehicles by non-filers of income tax returns or a person holding a Pakistan origin card or a national identity card for overseas Pakistanis on condition that the payment of duty and taxes was made through foreign remittances.

However, officials said the restriction was lifted on strong lobbing of the local manufacturers, who argued that the move resulted in significant losses in sales and as a consequence, revenue losses.

Sources also said through Finance Act 2019 further amendments had been made to Section 231B of the Ordinance by levying 100 percent enhanced withholding tax on registration of new motor vehicles.

There are nine different slabs having different engine capacity attracting withholding tax rates on registration of new motor vehicle.

As per the highest slab for motor cars with an engine capacity above 3000cc, a tax of Rs250,000 has been imposed on compliant taxpayers, while in case a person does not appear on the Active Taxpayers List (ATL) the tax rate is Rs500,000.

Sources said that through Finance Act, 2019 a new Tenth Schedule was introduced to the Income Tax Ordinance, 2001 as per which 100 percent enhanced withholding tax rate was imposed on various transactions made by persons not appearing on the ATL.

By taking such measures against non-compliant taxpayers, the number of return filers had been increased to record level of 2.5 million for tax year 2018.

The aim of the tax machinery was to double return filing up to five million by next year, sources said.

They added that the imposition of double rate of withholding tax on motor vehicle registration, people aiming to buy cars would be forced to comply instead of paying 100 percent enhanced tax rate.